It has been a long drawn-out process, with many a missed deadline and many an ignored ultimatum, but finally it looks this weekend as if the Euro cannot avoid collapse. Unless Germany agrees to underwrite the sovereign debt of all the 17 Eurozone countries and takes rapid steps towards fiscal union, the Euro project will fail. Italy has to sell substantial amounts of bonds early next week; a debacle then could trigger off a run on its banks and the seizing-up of credit throughout the Eurozone, the European Union and in other world markets. It may take a little longer for reality to break through. Whatever, hold on to your hat, the ride will be very bumpy.
I am not sufficiently expert to explain precisely why events have taken this turn. The obituarists of the Euro will have time a-plenty to delve and analyse. It has become clear that a currency union needs a much larger contingency bail-out fund than the EFSF on offer. The absence of a lender of last resort, in other words a responsible central bank, has been a fundamental design fault – the ECB’s powers have been constitutionally far too limited. The absence of a defined exit procedure has also proved fatal leading, as Hague said, to a panicking group trapped in a burning house with the doors locked and barred.
More technically 3 policy errors have been highlighted. It was a mistake of France and Germany to threaten Greece with expulsion – bond buyers were spooked into a flight from all dubiously credit-worthy sovereign borrowers. It was unnecessary (if prudent) to force banks to mark their bonds to market, as it made demands on their capital they could ill afford and deterred further bond buying. Worst of all, it was dishonest to claim that any Greek default would be “voluntary” for the private sector. This intentionally nullified contractual credit default swaps, the commonly used market method of hedging against sovereign default. A currency which reneges on its contractual obligations is one to avoid like a plague.
I am not inclined particularly to blame the Germans for this mess. Mrs Merkel vigorously filled a gap left by the incompetence and complacency of the Eurocrats in Brussels and cobbled together various deals. However the Eurozone is not ready for total German domination, which the original EEC was specifically designed to prevent. Merkel herself may favour fiscal union but her coalition and tax-paying electorate do not. It simply cannot be delivered politically at present. I believe sprightly Strauss-Kahn of the IMF would have been much more active in proposing solutions than passive Mme Lagarde, but it is doubtful he could have made a game-changing difference.
But manoeuvres in Brussels would never have been enough. The Eurozone, like the European Union itself, lacks democratic legitimacy. Brussels has a contempt for the wishes of the European people to whom it must ultimately be accountable. Like many a political class, the Eurocrats think they know best and complex matters of economic direction are not matters to be put to popular votes. So when the French and Dutch parliaments and the Irish people by referendum voted against the Lisbon Treaty in 2008, Brussels wangled a change of the French and Dutch resolutions and an insistence on a second referendum in Ireland until the “right” answer could be achieved. In 2011, when Papandreou sought to put the EU-ECB-IMF bail-out to a Greek referendum, Brussels was horror-struck and encouraged the replacement of Papandreou by unelected banker Papademos. With Italy in turmoil and Berlusconi’s support ebbing away, EU president Herman van Rompuy (who? who?) pronounced that elections would have to be postponed and so unelected banker Monti took the helm. The democratic deficit has become a chasm.
Here in Greece, the serial delinquent and arguably the fons et origo of the Eurozone’s catastrophic collapse, the populace is as baffled as ever by the crisis. They hate the austerity measures, but then turkeys do not vote for Christmas. Internally Greece remains anarchic, having just discovered that collecting the new property tax via electricity bills and threatening disconnection is contrary to EU law. There is no evidence that the rich have started paying taxes or that the political class has surrendered any of its outrageous privileges. However the squeeze on cash has been remorseless and anecdotally workless doctors and architects have been joining the soup-kitchen queues managed by the Orthodox churches. Asked if they favour a return to the drachma, most say they want to stay with the Euro, but seem to ignore the logical consequences.
A new and unlikely British hero has been discovered. Nigel Farage, MEP and leader of UKIP, has been a consistent critic of the Euro. Two recent punchy speeches at Strasbourg, one on 18 November castigating the 4 undemocratic “villains”, van Rompuy, Barroso, Junker and Rehn in graphic terms, (http://citywire.co.uk/money/nigel-farage-breathes-fire-at-stunned-eurocrats/a544631) another on 24 November concentrating on van Rompuy, have been repeatedly run on Greek TV. So have earlier speeches, with Farage being suitably rude about the Lisbon Treaty shenanigans and ridiculing ex CND treasurer “Baroness” Ashton, now unelected EU foreign minister. The Greeks are not used to British debating rough and tumble; their own regimented parliament listens to their deputies’ claptrap politely without interruption or cat-call. Now people in shops and tavernas say, thank God someone has had the guts to say what they all think.
Quite possibly the Greeks will be the first to crack. Shorn of his strength by the Delilahs in Brussels, I can see one last heave from the eyeless Greek Samson, pulling down the pillars of the temple upon the heads of the Eurocratic Philistines…. and great will be the fall thereof. Do not despair. In Britain the reputations of Blair, Heseltine and Clarke will be consigned to the dustbin: the stock of Gordon Brown will rise and Maggie Thatcher will see a bright shining light of vindication in her elderly confusion. Europe will rise again, not a centralised bloc but L’Europe des Patries in de Gaulle’s earlier vision, a democratic Europe co-operating closely but fulfilling its destiny as an association of proud nation-states.
SMD
26.11.11
Copyright Sidney Donald 2011
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