Monday, 18 June 2012

Momentary relief: 'Grexit' still likely

The victory of the pro-Euro, and pro-bailout New Democracy Party and Antonis Samaras (above) in the Greek elections will cause Eurozone leaders to breathe a sigh of relief. For now. Their terms have been (albeit very uncertainly) accepted. They can get on with building more of a firewall for the Euro's other debtor states. They can forget about a Greek exit.

Except they can't. Greek debt is unsustainably high, even after the 'haircut' that creditors were forced to take in 2011. It's expected to grow in the next year or two, not shrink. And the Greek Government is still being asked to deliver the completely undeliverable: unrealistic privatisation receipts, very rapid structural changes that no developed state has ever delivered, and large public sector cuts that will help to deliver a shrinking economy for as far ahead as we can see.

Does anyone really think that the Greeks can stay in under these circumstances? If you do, you're on very powerful hallucinogenic drugs indeed.

Far better would be a Marshall-Plan style rescue of Greece, cancelling most of her debts in exchange for binding and legal promises about her deficits (and perhaps a technocratic regime in Athens); new German economic policies that amount to a controlled devaluation of the hidden Deutschmark (basically, a great big wage-and-spend party in Northern Europe), and a complete restructuring of Europe's banks designed to get all debt off all their balance sheets - akin to President Roosevelt's reconstruction of the American banks in 1933.

Otherwise, Greece will still leave. All we're experiencing now is a brief lull - as the banking sector's shares reflect today. Did they zoom up, indicating that no-one believes their hands will be full of next-to-worthless new drachma in the next few months? No, sorry, they didn't.

To use a now well-worn (and mendacious) phrase: we're all in this together. And unless the Greek crisis is part of a new and convincing multilateral settlement, involving less austerity and more growth, and a fiscal union at the Eurozone's core that will amount to the creation of a new state, we're all going down the tubes together too.

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