I must confess to a certain wry amusement on seeing photos of the EU’s wretched “Crown of Thorns” flag on fire in the streets of Athens. But the underlying problems leading to the flag-burning are no laughing matter, and can only get worse.
This morning (Feb 9th) the financial pages are hailing the ECB’s latest debt deal for Greece, and the €uro rose on “hopes that Greek politicians were ready to yield to the demands of their Troika paymasters”. Yet less than a fifth of the bail-out money actually goes to the Greeks — most goes to foreign financial institutions and the ECB.
If Lord Byron were still alive, he’d surely be in tears. Towards the end of his tragically short life he went to Greece, to fight for Greek independence against the Ottoman Turks, and he died (of disease, not hostilities) in Greece. What would he say if he could see the birthplace of democracy reduced to a mere province of Europe, its elected Prime Minister replaced by an unelected Brussels apparatchik, its spending dictated by foreigners, its people subjected to exceptional economic hardship, with no end in sight and decades of depression to look forward to, dictated by, of all people, the German Chancellor.
I feel desperately sorry for the Greek party leaders. If they accept the Troika’s prescription, ahead of elections, they will be annihilated at the ballot box. If they don’t, Greece will default, and the consequent hardship will be just as bad. The economic solution is not politically acceptable, and vice versa. There is no way out.
What Merkel fails to realise (or rather, must surely see, but refuses to acknowledge) is that the medicine is killing the patient. It recalls the old operating theatre joke: “The operation was successful, but the patient died”.
Of course the Greeks are partly to blame. They lied their way into the €uro, knowing full well that they appeared to meet the criteria only by the application of deliberate and cynical accounting tricks. They hoped for access to vast credit lines at low rates. We also have to blame Brussels, which arguably understood the mendacious accounts, but nodded Greece through anyway. The EU wanted expansion at any price (rather as they do today with Croatia), and damn the consequences. The fact is that Greece has a wholly different economic culture from most of Europe. They live a Mediterranean life-style. They enjoy the sunshine, and they don’t pay taxes. Somehow they got through with a devalued drachma, but they cannot survive the straightjacket of the single currency.
Merkel’s problem is that her medicine (in addition to killing the patient) is merely addressing symptoms and consequences. We have a failure of diagnosis. Merkel perhaps knows that the real problem is the €uro itself, but she cannot possibly admit it. If Greek politicians are in a hard place between politics and economics, Merkel herself is in a hard place between her perceived need to save the €uro, and the reluctance of German voters to send any more bungs to Club Med.
Even the new ECB measures, if they go through, will merely delay the evil day. Greece cannot survive indefinitely with a massively distorted exchange rate, and unit labour costs 30 or 40% out-of-kilter with northern Europe. The longer they delay, the bigger the eventual crash.
Greece must leave the €uro, and default and devalue. They will go through some hard times, but hard times are already baked into the pie. One shred of hope: they should reflect on the hugely positive impact on the British economy when we left the Exchange Rate Mechanism in 1992. Leaving the €uro will be the best thing Greece ever did.