Can Greece remain in Europe? This could be make-or-break week

Aug 22, 2012
Richard Ehrman

Greek doctors unpaid, hospitals without hot water – but will it cut any ice with German’s Angela Merkel? Unlikely

IT ALWAYS used to be a cast-iron rule of European politics that nothing could disturb the four-week August holiday. Not any more. After only the briefest of summer lulls, the euro crisis is forcing one leader after another back to their desks.

Spain’s beleaguered prime minister, Mariano Rajoy, has already returned to his after just a fortnight off, while this week’s meeting in Berlin of Angela Merkel and Greece’s Antonis Samaras is being billed as a make-or-break session for Greece’s continued membership of the single currency.

For the unfortunate Samaras, who has spent the summer trying to pacify his country’s creditors by wringing another E11.5 billion worth of savings out of its overstretched budget, it has meant having no break at all.

Even so he is likely to get a sticky reception in Berlin, not least because he will be asking for an extra two years to implement this latest round of cuts. German ministers have already indicated this is something they will be extremely reluctant to agree to.

There are also huge questions over whether the proposed cuts, which equate to roughly E1,000 per head of population, are feasible on any timetable. As its economy implodes, the country finds itself trapped in a vicious downward spiral with unemployment soaring and tax revenues shrinking.

Greek GDP has collapsed by 18 per cent since its peak in 2008, four times the fall we have suffered in the UK, and is continuing to contract by six to seven per cent a year. If it goes on falling at anything like this rate, the loss of tax means that even cutting E11.5bn might not be enough to balance the books. Economists reckon the eventual figure might have to be as high as E14bn.

You don’t have to be an expert to realise that these are the economics of the madhouse.

I returned from Greece a few days ago. Wherever you turn, the impact of EU-mandated austerity is painfully apparent. Last autumn I mentioned in this column a doctor friend who had not been paid for three months. Hers is a fairly typical story.

Still unpaid this summer, she was, she told me, pressured into early retirement but has yet to receive her pension, meaning that she has not got any of the income the government owes her for nearly a year now.  

Meanwhile the hospital where she continues to work, part-time and unpaid, no longer has hot water or even lavatory paper. Yet such considerations are unlikely to cut much ice with Mrs Merkel, who finds herself under increasing domestic pressure to push Greece out of the euro, come what may.
Such an outcome might, in fact, have a lot to commend it. For the Greeks, leaving would certainly be traumatic but in the longer term almost anything has to be better than death by a thousand EU cuts. And with Greece out of the way, maybe the German public could finally be persuaded to accept the measures needed to save Italy and Spain.

If this is their real agenda, however, Germany’s leaders are not yet prepared to admit it publicly, let alone spell out how it might work in practice. As the Finnish Foreign Minister recently explained to the BBC, the Eurozone leaders may talk about it in the corridor but not at the conference table. Yet it is hard to see how a “Grexit” – or at least a reasonably orderly one – can be effected if those in charge are not prepared even to discuss it properly.
Lulled, perhaps, by vague reassurances that Greece’s departure would be manageable, the markets have recently switched their focus to Spain. But that does not mean Greece has lost the power to destabilise. If a disorderly Grexit leads to other countries following it out of the euro, or even the collapse of the whole shaky edifice, the consequences could be enormous.

The Germans have always seen themselves as the wronged party in this saga, the straight guys who are having to pick up the bill for the misdeeds of others. But, by the same token, it is they who are now calling the shots. If they are really going to precipitate a Grexit, at the very least they have a responsibility to explain how it is supposed to work.  

If they won’t, the suspicion has to be that they simply don’t know, which really is a frightening prospect.

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The myth of sisyphus.
I love this endless discussion.

"For the Greeks, leaving would certainly be traumatic but in the longer term almost anything has to be better than death by a thousand EU cuts."

Excellent comment. Greece in control of the New Drachma and sorting out her problems.