Wednesday, 8 July 2015

Mrs Merkel: now is your moment


We have now reached a fundamental turning point in the history of the European Union - and perhaps of Europe as a whole. For the whole Greek imbroglio is threatening to tear at the very European ideas that have spread and nurtured peace, prosperity and progress across the continent for nearly six decades now: solidarity; fellow feeling; shared citizenship; equality of opportunity; economic dignity. You know, simple stuff like that.

For in all the commentary on the Greek crisis, what we haven't focused on enough is its moral and political aspects.

Think of it like this. Why should Greeks who've saved all their lives have to pound the streets looking for a cash machine? Why should Greek businesses struggle to find a little bit of capital that'll keep them going? Why should sick and ill European citizens - for that is what they are - have to resort to begging their medicines from charities? Because of the insolvency of their elites? Because of those rich Greeks who long ago spirited their money out of the country in suitcases? Because the Germans want to make an example of them, or the Irish, Portuguese and Spanish resent any suggestion that all their long and tough budgetary pain could have been avoided had they played hardball?

The answer is quite simple. Why should Greek citizens - businessmen, pensioners, savers, nurses, doctors, patients - have to suffer all this? Er, they shouldn't. They have the right to expect to be decently and even well treated, just as Britons who live in Cornwall and Devon expect public spending there, and infrastructure spending in their communities, to be kept up even as their economies struggle to keep up with the rest of the sterling area. Just as Scotland's banks would no doubt have attracted support if an independent Scotland had remained inside a shared sterling zone and the country's ballooning budget deficit (and capital flight) had threatened to see them crash and burn. That's just what you do. If you have the same currency, you have to have the same economy - and the same politics. A banking union. A budgetary union. A political union.

German voters have lived in denial of this basic fact for years. Allowing separate countries pretty much full autonomy within the same currency zone is a recipe for disaster, for those states cannot devalue, selectively intervene or rearrange their debts in the way that a fully sovereign country can - while being able to run up deficits that they have no way of paying back via stronger competitiveness or exports. So the whole system encourages them, instead, to lie about their spending and deficits - as Greece duly did - to stay inside the currency system that's the very reason they're able to raise all the money cheaply in the first place. It's a dynamic but unstable equilibrium, almost designed to end in disaster when the music stops and your creditors open the box you've been passing around - to find absolutely nothing in it at all.

Nor is this all. It was Germany, France and the other Eurozone states that let Greece into the club. It was Germany and France that let their banks pile into Greece and spray money around like a Formula One winner firing off the champagne. It's been Germany that's been taking advantage of Greece's fixed currency peg to sell all those washing machines, cars and dishwashers. Now it's those same states who want to make sure Greece 'pays its debts' - to make sure they go on enjoying all the advantages of a currency union, with none of its attendant costs. Well, there's more than enough blame to go around, and some of the burden should be borne in Paris and Berlin - where many of the costs originated in the first place.

So there's got to be a deal. One that reduces Greek's indebtedness to the institutions that hold her fate in their hands, or at least a rearrangement of them so that the shrunken Greek economy can hope to pay. Some of the historical parallels are overdone here. Yes, Germany's debts were reduced in 1953, after the Second World War, but Germany was completely devastated - and divided into East and West. Her debts were also much lower as a share of her economy than Greece's are today, as well as being a bit of a fictitious construct in the first place given the craziness and impossible-to-measure destruction of the preceding twenty years. But that was still a wise act of magnanimity and statesmanship - a real act of morality and politics designed to hold the Cold War West together. Now we need to hold together again, however much Syriza muck about with proposals-that-aren't, and however much they propose tax rises that seem unlikely to bring in anything like they say they can raise.

Regular readers will know that, in the long term, Public Policy and the Past believes that Greece should leave the Euro in an orderly manner, before coming back later (much later, at this rate). This should have happened years ago, and would avoided a lot of pain in the interim. But deeper sovereign debt relief than has hitherto been offered will do at a pinch, and in fact at the moment it's the only game in town. Because if Sunday's now-crunch talks fail, Greece will suffer the agony - not pain, agony - of a chaotic default. There must be a real danger that emergency airlifts will be required to bring free medical and even food aid to her people, because setting up a whole new currency will take some time. In Europe. In 2015. For who's going to accept the stamped IOUs that Athens will have to issue, coming as they do from a state with such a shriveled tax base, bombed-out banking sector and pitiful export record.

Greeks are standing on the brink. Now, the actual impact of any failure to reach a final agreement on the world economy as a whole might be slight. The Greek economy is tiny - maybe one-seventeenth the size of Germany's - but that won't be much comfort to you if you're on the bread line in Athens. Nor will it matter much if you're a Northern European creditor, all of whom stand to lose their shirts. The former will hurt a lot more than the latter, but everyone will be crying. Not least those of us who believe in Europe, and who believe in purposive and well-planned public policy, watching an entire European society fall apart when it simply didn't have to be like this.

Basically, this is Mrs Merkel's moment. She has to decide who and what she is. Is she a rather dull technocratic time-server, tacking about trying to find a solution that will buy off her voters - and probably hang an entire people out to dry? Or is she a bold and visionary stateswoman, ready to cope with a bit of unpopularity (and perhaps loss of office) in the service of the European dream?

No-one wants history to find them out like this. No doubt everyone wants to govern as if it's permanently the late 1990s, with no real foreign threats on the horizon, the economy humming along, and lots of cash to give away to voters. But we can't pick our times. We can't choose our moments. History is just there, all the time. Stuff happens. The world's not always how we want it to be. It's just what we have to deal with. And history (or History) has now loomed up and confronted Mrs Merkel - one of Europe's most rational, most capable, and most committed politicians - with a choice for the ages. Tactics or strategy? North or South? Germany's narrow, momentary interests - or the future of an entire country?

Mrs Merkel can give a lead. She can give a rousing address about what it means to be a European citizen, and all our responsibilities to that ideal. She can work with the French and the Italians to find a deal. Or she can have historians say forever that she didn't want to - that she turned away, hid, slunk back to what was 'normal', easy, consensual and safe.

Angela, it's up to you.

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