GREECE MAKES HER CASE

It has been a frantic fortnight for the new SYRIZA Greek government as its Finance Minister Yanis Varoufakis and Prime Minister Alexis Tsipras tour various European capitals to drum up support for a radical change in its Eurozone financing arrangements. It has also presented its programme at home and won a necessary vote of confidence in the Greek parliament. Many would have expected the Greeks to have been already flattened by the big battalions in Berlin and Brussels but to their credit the Greeks are still standing. They look like the new men, the new live-wires, amidst the tired old men of the old political elite.

Tsipras receives the Judas-kiss from Juncker

Schaeuble and Varoufakis disagree

Both Tsipras and Varoufakis have seen a succession of generally hostile “partners” – Schulz (all smiles in Athens, all complaints back home), Dijsselbloem (a highly uncomfortable bout with Varoufakis), Juncker (patronising Tsipras, kissing, holding hands), Schaeuble (failing even to agree to disagree with Varoufakis) and Draghi (conciliatory to Greece, then aggressively hostile to Greek banks over liquidity). Only from France’s Sapin did Varoufakis receive quiet support and in semi-detached Britain too, giving Osborne a cosy economics seminar.

Varoufakis is developing into a star turn. He is a highly intelligent academic economist, who explains his case with eloquence and logic. His informal garb, shaved head and motor-bike are rather off-putting for old fogies like me but I have no doubts about his intellectual credentials (read his provocative The Global Minotaur) and he exudes charisma – Christine Lagarde of the IMF seems smitten. He argues that Greece cannot pay its debts, that the Troika austerity programme has totally failed and that a new arrangement must be made. He has proposed a bond exchange involving some bonds linked to Greece’s economic growth and others undated and perpetual. He wants the Greek primary surplus target to be lowered from 3% to 1 ½%, so that there is more financial room to assist “humanitarian casualties” of recession; he wants to re-instate some sacked public employees and he wants a higher limit on Greece’s ceiling for issuing short-term bills. Many leading economists believe these proposals are sensible and should be broadly acceptable in financial terms.

Predictably, these proposals have been received with stony faces by the Eurozone leaders. Despite the obvious fact that the Troika austerity programme has been rejected by the Greek electorate, rigid Germany insists that it has been agreed by previous Greek governments and must in substance be implemented. Any change can only be presented as an amendment to the programme, and all other conditions must be accepted. If not, by 28^th February, the discussions end, all support for Greece is withdrawn and Greece will leave the Eurozone. Take it or leave it!

Angela Merkel, Greece's nightmare bank mnanager

The fear of the Eurozone leaders emanates from the concept of “moral hazard”. Allow the Greeks to wriggle out of prior commitments and they will be emulated by other weak states like Portugal, Italy and Spain. Germany and the Northern Europeans do not want the Eurozone to unravel – it suits them down to the ground as they generate huge surpluses from their trade within the zone, not to mention the lavish Brussels gravy-train for all the Eurocrats. If Southern Europe sees only endless austerity, that is their look-out, attributable to their feckless ways and inability to be “more German”

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Tsipras has widespread public support in Greece and will not do a U-turn. So Grexit is a real possibility and there are only 2 weeks to avert this potentially catastrophic outcome. Personally I favour a friendly planned Grexit on the basis that a generous bond deal of sorts is done, Greece devalues to give it a chance of ultimate recovery and there is substantial help from the IMF, supported bi-laterally with help from the  US and UK. There are many dangers but long-term there may be a decent outcome. A hostile, forced exit will throw Greece into the arms of Russia and others keen to make mischief in the Eastern Mediterranean; the rather silly anti-German rhetoric, and Marxist calls for nationalisations in Greece will become ever more strident.  Can Europe save itself?  There is a tense 14 days left to cut a sensible deal!

SMD

12.02.15

Text Copyright © Sidney Donald 2015