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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