The long-running drama surrounding Greece’s ability to stay
in the Eurozone will soon be resolved. After all the sound and fury, I believe
a calm decision needs soon to be made by the Greek government to announce she
cannot meet her international liabilities, that she therefore will default,
call for discussion with creditors and apply for further assistance from the
IMF. The drachma will be introduced immediately in substitution for the euro
together with appropriate capital controls. Creditors will have to accept a
sharp haircut imposed by Greece. Contrary to the received wisdom I look upon
this as a golden opportunity for Greece and a blessed relief for the rest of
the Eurozone.
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| Polite Merkel and Tsipras but lacking chemistry |
Greece has received two Eurozone injections - €110bn in 2010
and €130bn in 2012. It has now been confirmed, as long suspected, that the
first tranche of €110bn was designed principally to enable Continental banks to
withdraw funds from Greece to protect the euro, substituted by sovereign buying
of Greek bonds. Negligible amounts actually filtered down to help the Greek
economy; the inexperienced Greek government of the time näively did not
understand these mechanics although Greek taxpayers had to service all the loan.
The second tranche of €130bn was of more direct assistance, but was coupled
with a draconian regime to enforce austerity and control all government
expenditure and by this time Greece’s indebtedness had rocketed. PASOK Prime
Minister George Papandreou appalled the Eurozone by saying he wanted first to
call a referendum to approve this deal democratically; within 2 weeks he was
deposed in murky circumstances and a slavishly pro-Eurozone coalition was
established, first led by the technocrat-banker Papademos and then, after
elections, by the New Democracy leader Antonis Samaras, in coalition with the
drastically diminished PASOK, who did anything Brussels and Berlin demanded.
The bail-out deal ended on 28 February but a month
previously the cosy atmosphere in Athens changed with the election of SYRIZA a
fierce critic of Eurozone policies. SYRIZA capitalised on the austerity-fatigue
of the Greeks, the widespread social distress as unemployment, new taxes and
deep welfare cuts bit, and on the corruption, incompetence and easy surrender
of national sovereignty of the New Democracy – PASOK coalition government.
After an unseemly wrangle the Eurozone agreed to extend the bail-out deal to 30
June, but any disbursements (€7.2bn is undrawn) were linked to Greece towing
the Eurozone line.
To the indignation of the Brussels fat-cats, Eurozone
policies have been challenged for the first time by pipsqueak Greece and the
logic of its programme ridiculed by articulate and highly qualified economist
Yanis Varoufakis, the Greek Finance Minister. Greece has (admittedly rather
belatedly) produced a comprehensive schedule of costed economic measures, but
the Eurozone has only nit-picked, complained and procrastinated. There is no
political will in Brussels and Berlin to disburse any funds, while ever larger
Greek repayments to the IMF loom. There is no meeting of minds between Greece
and the Eurozone; default and Greek exit from the Eurozone look inevitable.
 |
| Schaeuble and Varoufakis fail to agree |
Tragically both sides are right. The Eurozone will point to
Greece’s bad record of combining promises with minimal action. No creditor will
lend more without careful monitoring. The Greeks, with their history of
corruption and incompetence, cannot easily be trusted. Moreover if austerity
worked in Ireland and elsewhere in Europe, why not in Greece? The Greeks say
they are determined to reform their economy but the concrete evidence of this
is sparse. The Greeks in turn look upon the Eurozone-imposed programme as an
affront to their sovereignty and they reject it entirely. The medicine simply
does not work and they explain the inelasticities of their creaky economy and
the urgency of their programme of social spending. Under protest they have
submitted their own programme, but feel they do not need to justify every word
to unelected bureaucrats in Brussels while they themselves have a strong
democratic mandate. A variety of quite separate side issues has emerged –
Greece’s justified pressure for sensible discussions about German WW2 reparations,
Greece’s rather cynical wooing of Putin’s dangerous Russia, German and
conservative hatred of any Leftist regime in Europe.
If Grexit is
inevitable, it will be a major set-back both for Greece and for the Eurozone.
The Brussels commission will have failed to keep the Euro band-wagon running
smoothly. Certainly other debt-laden nations will examine their options
carefully. But in the broader scheme of
affairs, Greece is a gadfly and her defection may be manageable for the
Eurozone.
Ideological tensions were inevitable. Of the 30+ ministers
in the SYRIZA-Independent Greeks coalition, 6 once sat on the Central Committee
of the Greek Communist Party – seasoned proponents of Agitprop, and probably
imperfectly cleansed of their old credo. SYRIZA is not well-disciplined, but
remember, to the average Greek voter it is infinitely preferable to the fetid
previous New Democracy – PASOK coalition. Staying in the Eurozone is a SYRIZA
talisman so Grexit will be a heavy political blow.
The Eurozone does all it can
to undermine the Tsipras government; a stream of vituperation emanates daily
from Germany and her satraps - I call them the FANGS (Finland, Austria,
Netherlands, Germany and Slovakia). Mario Draghi at the supposedly neutral
European Central Bank has been notably hostile and exercises any discretionary
decision against Greece.
Internally SYRIZA is of course beset by the New Democracy
opposition with deluded Antonis Samaras preening himself as a triumphantly
returning Prime Minister – some hope! The Press and the TV channels, mainly
oligarch-owned, attack the government constantly and sow despair and
discontent. Yet SYRIZA remains popular and would easily enough win any election
or sway any referendum. It receives solid support from conservative Independent
Greeks, opposed to austerity and German domination, led by outspoken defence
minister Panos Kamenos.
Grexit, if it comes, may be a long drawn-out process. Greece
will impose capital controls belatedly to reduce the flight of capital from her
stricken banks: the can could “be kicked down the road” by the Eurozone eking
out small doses of the promised funds. Even a default can be subject to grace
periods and delayed recognition.
Yet Greece fundamentally cannot pursue any independent
policy within the Euro. Its goods are over-priced, her labour costs are too
high and her institutions are not up to the challenge. It is better to confront
reality. The return of the drachma will usher in a substantial devaluation,
bringing short-term severe shortages and dislocation. In time however Greece
will find markets in Europe and elsewhere for her agricultural produce,
relatively substantial extractive industries, modest modern industries and
growing tourism. Maybe she can stay in the EU, but she may be better off not
being subject to Brussels rules and quality standards. If Brussels is at all
helpful the transition can be less painful, but the Eurozone will be very
unhappy and maybe embittered by the financial haircut Grexit will imply.
The remaining Eurozone should be happy that a long,
intractable headache is over. The dream of a fully integrated United States of
Europe can be developed by core Europe, even if one or two drop out like Greece.
I am glad that the United Kingdom will not be part of this “ever closer union”
– at odds with our history, culture and national predispositions. May European,
Greek and British statesmen rise to the momentous occasion!
SMD
15.04.15
Text Copyright © Sidney Donald 2015
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