Sunday, 22 February 2015

Memo to finance ministers: stop kicking Greece while she's down


Imagine your neighbour's house was burning down. What would you do? Take them in and provide shelter from the elements, maybe? Call the fire brigade? Get stuck in with the buckets of water and the hoses? Such an attitude would seem natural, normal, well-adjusted: it would pass without comment.

Not if you're France and Germany, it wouldn't. Because they've just decided to turn an economic flamethrower on their Greek friends. First the European Central Bank let it to be know that they'd cut the Greek government adrift if negotiations didn't work out, while making sure that they offered only just enough to keep them open. Then the frighteners were really put on the Greeks. Sign here, the Germans and French said, or your banks will be insolvent and you'll be forced out of the Euro. Okay, they didn't put it quite like that, but that's what they meant.

One despairs. Europe's paymasters are now so far down their road of mangled economic pathology that they don't even know where the light of reason once was, if they ever saw it in the first place.

Having elected a radical government that rejected the last few years' austerity, Greeks' reward was to have their banks rabbit-punched by the ECB and their politicians berated for mistakes their predecessors had made. So the negotiations are over for now, and we've got just about nowhere. All the Greeks got was four months' more credit, and a very vague promise to look again at some of the extent of her budget surplus - exactly the sort of fudge Athens had railed against in the first place. Democracy? Pah.

Regular readers will know that Public Policy and the Past has always said that the best thing for Greece would be to leave the Euro, bring back its own currency, devalue, default and then come back stronger in a few years' time.

But Greeks don't want to do that. They want to keep the Euro - to which they are perfectly entitled, since they are citizens of the European Union and have every right to take all the benefits of lower interest rates, ease of use and 'security' that gives them. And if that's what they want, they need support. What will all those high-minded words in all those union treaties be worth if they don't get it? Chip wrapper, that's what.

The worst thing about all this is how unnecessary it all is. Give a few proper economists an hour and they'd wrap it all up. Longer terms for Greek debt would make it more than payable. Here's something you probably didn't know: Greece is running a big budget surplus just to pay the interest on its debt. Give them a lot longer to pay, and a lot of the problems disappear. The Greeks can reduce their foreign outlays - which mainly go to the big German and French banks who got them into this in the first place anyway. Government spending can decline less steeply. Growth will be higher. Structural changes to boost productivity will be more likely.

No doubt Northern European Finance Ministers think they're pretty clever, firing off their shock and awe in all directions. They think that they've made the Greeks take the bulk of the concessions. That Syriza has been humiliated, and will crawl back into its nice non-partisan box and play nicely. That the Greeks will just accept a few tweaks to the 'bailout' terms. That their electorates - particularly German voters - will give them the thumbs up for 'punishing' supplicant countries who can't pay their way.

They are seriously deluded if they do think that. In fact, what's they're doing is undermining the European ideal, making clear that the budgetary union that must follow a currency union is as far away as ever. Think of the language used. Who 'won'. Who 'lost'. Who is 'on top', and who has been 'beaten'. No such language would be possible in terms of the UK's own currency union, bolting Cornwall together with Northern Ireland, and Suffolk together with the Scottish Highlands. The currency and financial shock of falling oil prices is being absorbed right now by the transfers within that system - transfers that the struggling Greek economy is not allowed, even though all of her problems are down to her being in the Euro in the first place.

The European authorities have made sure that the new Greek government has a seriously hard sell on its hands. That it might struggle, then fall, paving the way for more radical elements - perhaps this time from the hard Right - to take over. That Germany is now seen as the Greeks' jailer, rather than their ally. And all so the Spanish, the Irish and the Portuguese don't get any funny ideas about debt restructuring and forgiveness.

And in that lies the problem of the European elites. They think of themselves as 'Europeans', but they're not willing to take the steps to give that identity political weight and force. They are too clever by half.

Well, here's the payoff: they won't feel so tricksy if they bring down their own currency, and Greek democracy along with it.

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