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Why the Greeks would be mad to leave the euro
Promising the minimum necessary to keep the loans flowing is Greece’s only real option
Late June is normally one of the best times to be in Greece. But this year even the blue skies, bright flowers and warm, balmy sea can¹t distract from the trauma of the never-ending Greek financial crisis.
Later this week, against the backdrop of a general strike in the public sector, parliament is due to decide on another package of deeply unpopular austerity measures, demanded by the county's creditors before they will release more emergency loans. The vote is expected to go to the wire and the consequences, not just for Greece but the entire global financial system, could be disastrous if it is lost.
So could one small country, accounting for under three per cent of the eurozone economy, really be about to push Europe over the edge? And if it does, will Greece also leave the euro?
Twelve months ago, when the country agreed its first giant rescue package with the IMF and the EU, things looked bad, but not this bad. The Greeks, understandably, were humiliated and angry. But there was also an expectation that their anger would force real change, and that the vested interests, cartels and monopolies which have deformed the Greek economy for so long would finally be tackled.
Some reforms have been pushed through and they have been painful, more so than the country's critics credit. Civil servants now get 12 months' pay, rather than 14. Pensions have been cut and taxes have gone up, especially indirect ones which are harder to dodge. Petrol has risen by 75 per cent since the crisis first broke nearly two years ago. VAT has gone from 19 to 24 per cent.
But many other reforms have been blocked or watered down. And as things get worse, the willingness to accept austerity has shrunk. In the private sector earnings have fallen pretty much across the board, many small businesses have closed and unemployment has soared. Away from the demonstrations in central Athens, the anger, and the energy that briefly accompanied it, has given way to fear and despair.
As a second, even bigger rescue package is finalised, the one thing the Greeks are not short of is advice from abroad. The message from Germany and the IMF is that still greater sacrifices will have to be made, not so much to save Greece as to save the euro. At the other end of the spectrum, British eurosceptics urge the country to ditch its debts, bring back the drachma, and thus achieve what Boris Johnson has termed a moment of "Byronic liberation".
Last year many Greeks would have agreed with Boris, but not now. It is one thing to ask a country to swap a weak currency for a strong one ¬ as Greece did when it changed the drachma for the euro. But after the last year of turmoil, they feel that the euro is the one solid thing they have left.
No one any longer expects the Greeks to be able to honour all the debts they are running up. But nor does anyone seriously expect them to come up with a solution to their problems. That, it is accepted, will have to come from the big players in the EU, particularly Germany and France.
In the meantime, so long as Greece is in the euro, the rest of Europe has no alternative but to continue bailing them out. In turn this means that, although it is clearly prudent for the Greeks to pay lip service to their creditors' demands for greater austerity, no one can actually make them follow through on it.
Were they to leave the euro, on the other hand, no one would lend them a penny. Their banks would go bust, their savings would be lost, and inflation would soar as the newly restored drachma plummeted on the foreign exchanges. The riots we have seen in Athens would be nothing to the social unrest that would follow. Any government that tried to impose such a change would surely fall.
Keeping the euro does not mean that life is going to get better for Greece anytime soon. And while the broader eurozone crisis remains unresolved, the risk of a calamitous accident must be high.
But for now, staying in the euro and promising the minimum necessary to keep the loans flowing is really the only option the Greeks have left. It may be short-term and it is hardly edifying, but they would be mad not to stick to it - at least until the EU, or even Boris, comes up with something better. ·
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there was also an expectation that their anger would force real change, and that the vested interests, cartels and monopolies which have deformed the Greek economy for so long would finally be tackled. oh really? On which planet was that?
Where/when have "vested interests, cartels & monopolies" ever been tackled except at the pointy end of a revolution?
Incidentally, Jose, it was Goldmann-Sachs, the Vampire Squid, that cooked Greece's books, and extorted a fat fee (from memory $300-500M) for that little con-job. Can it really be called a con-job when the EU knew it was a work of frabjous fiction, callooh callay...?
Let the disaster occur.
Let the systems collapse.
Lets start anew.
How on earth can you expect billions of loans to be paid back.
Note i dont see the rich taking cuts??
Why not??
if the Greeks agree to the conditons i'll bet the mess wont stop there!!!!!!!!!!!!
The advantages of a single currency and a union are huge which all nations in the EU accept, except the UK and where else. The Greeks know this; otherwise they would not make the effort to comply with EU requests. The fundemental problem is that currently Greece is economically deficient. Investment is needed to rectify this position. Getting new enterprises launched with all the austerity is uphill and worse. The EU clearly needs to look harder as a solution to the Greek problem. A solution would bring a host of benefits to the community.
The Greeks would be sane (well slightly better off) to leave the eurodollar. Three reasons:
1. Then they can reduce the value of the drachma and lower the bar on the euro-debt; that would cheese off the euro creditors but as these folk are not going to get their money anyway its better than nothing and ends the crisis. The eurodollar will just continue without them, no one harmed.
2. Once free of the euro straight jacket the Greeks can raise their own interest free bonds and hand back the interest bearing ones to the creditors by exchange; owing the money to themselves saves on interest payments to external creditors; again it will cheese off the creditors but since the creditors don't have any money backing their credit bonds either its a bit of a cheek demanding interest since there is no actual lending risk - its just fiat paper notes created on a PC at the bank as an accounting entry.
3. Once back with the drachma the Greeks can trade freely again as their own monetary masters not beholden to a euro-gov currency that holds them back thus giving a better chance to paying back the residual debt over time.
Of course this is theoretical, the Greeks are actually masters at ruining their economics and why change the habit of centuries during this one? If they can go on receiving worthless fiat money from the ECB indefinitely and fuel their nanny-state-styles for a bit longer, why not? Lending to sub-prime is not a new idea, it only remains to see who gets to own Greece in the end, it won't be the Greeks.
Of course the Greeks would be mad to leave the euro - and there is no mechanism for it anyway. The euro has put billions upon billions of easy money into Greek pockets, mainly the pockets of Greek poliiticians and banks, to fund a lavish socialist spend, spend, spend lifestyle for many years. The whole world now knows that they cooked the books to get into the euro, and the whole world should know that Brussels and Frankfurt looked the other way as they cooked the books. Too many cooks spoil the euro-broth, honour amongst theives, etc. The euro is a political project - get monetary union, then slowly weaken the nation states and force ever-closer political union. Perhaps the Greeks did not see that price they would have to pay.