After months of tedious negotiations and fraught Brussels summits edging towards a deal to stop Greece leaving the Eurozone and saving the banks, some kind of cobbled-together pact emerged on 27 October. Sighs of relief all round, and the leaders were sent home to tell the good news to their grateful nations. It has lasted 3 days. Yesterday Greek premier George Papandreou exploded a bomb under it all by insisting that, assuming he can survive a parliamentary vote of confidence this Friday, he wants to hold a referendum in January so that the Greek people can approve the deal he has so laboriously brought home. The Eurozone is in uproar at this unexpected turn of events, some trumpet that the original 27 October deal is off and global stock markets have yet another reason frenetically to palpitate and wobble.
Many independent commentators in Europe, UK and USA calculated months ago that Greece had no prospect of paying its debts, that Bailouts Mark 1 and Mark 2 only made matters worse – its debt forgiveness so laden with sweeteners to bond-holders that the net gain for Greece was negligible – and that an orderly default and a euro exit were preferable. Even the German finance minister Wolfgang Schauble favoured this at one stage. The Eurocrats, however, strove to keep Greece in the Eurozone, at almost any price, but saddled her with such harsh deflationary austerity measures that her already weak economy is flat on its back and some other remedy must now be found. No exit mechanism was originally envisaged nor has one now been agreed.
To any Greek government, the prospect of years of austerity and squeeze, micro-supervision from Brussels, high (and payable) taxes, butchered benefits and huge public sector redundancies is decidedly unappealing. No compensatory stimulus is offered even in distant prospect. Greek sovereignty, even a sovereignty so historically misused and corrupted, is as valued by its citizens as in any other country and the bailout deals seem aimed at eliminating Greek political independence. The Eurozone supervisor of Greece, or Gauleiter as he is unflatteringly nick-named, a German bureaucrat called Horst Reichenbach, was supposed to start work today. Calling for a referendum at least addresses the “democratic deficit” so deplored by many Europeans.
Our timbers will soon be shivered by commentators painting a ghastly picture of the consequences of a Greek default, orderly or disorderly. Bust banks in many parts of Europe, a global stock market catastrophe, in Greece riots, pestilence and famine – or at least swingeing capital controls and food and energy rationing – that is the Doomsday vision. It is probably over-egged, though a nasty period may be inevitable. But surely the core of Europe will readily bounce back with its native advantages and even Greece should find her path forward at some suitable level of economic activity. The people of Europe should not be eternally punished to protect the shareholders and depositors of over-cherished banks whose crass lending errors created the crisis in the first place.
In fact it is doubtful that the Greek referendum will ever happen. It is much more likely that the Greek PASOK government will soon lose its parliamentary majority; there are also various political manoeuvres afoot which can force an election. An election would end PASOK rule but probably result in a fractured parliament – with a solid conservative bloc but strong far Left – and a Grand Coalition government. This coalition government would try to negotiate a much better deal with Brussels, but the pull of independence may be too strong and an agreed departure of Greece from the Eurozone may be the ultimate result. But at least the people will have spoken.
The performance of Greek politicians has been lamentable. Premier Papandreou sounds honest enough and may be well-meaning, but never looks as if he has mastered his brief. His referendum call has caught everyone on the hop including his own cabinet and party. It is perhaps the dice throw of a desperate man. His smart but obese Finance Minister Venizelos, worn out by the wrangling in Brussels, has entered hospital with possibly “diplomatic” stomach pains, to avoid the no doubt frequent and furious calls from the IMF, ECB, EU Commission and his unhappy counterparts in France, Germany and all points North. The rest of the government is as trustworthy as a wagonfull of monkeys – Berlusconi would look like a plaster saint in their company.
If the Greeks were liberated from the euro, which they should never have joined in the first place, and were left to finagle and hornswoggle among themselves in their own inimitable way, what of the euro? The North-South imbalances would remain a difficult structural problem and perhaps the Mediterranean states, Spain, Italy and maybe France will launch their own weaker currency and leave the euro to the industrious North, Germany, Benelux, Austria and later Scandinavia. There will always be a periphery of states which do not quite fit. Greece has been a case in point and if it has been the catalyst of an ultimately beneficent reconstruction of the European financial system, it will unwittingly have done Europe a signal service.
SMD
1.11.11
Copyright Sidney Donald 2011
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