• No Gifts for the Greeks

    Europe’s politicians and bankers have no one to blame but themselves for Greece’s current agony, but they insist that the price of their foolishness should be paid – not by any sacrifice on their own part – but instead by ordinary Greeks.

    The euro-zone was always a disaster waiting to happen.  Yet, even now that the inevitable has arrived, the architects of the arrangement insist that is for the Greeks to accommodate painful reality, and that their own illusions and self-deceptions should remain intact and unchallenged.

    We do not need the benefit of hindsight to know that it was always going to turn out like this.  Many of us warned from the outset (and even before that, when the euro-zone’s predecessor – the Exchange Rate Mechanism – was coming unstuck) that the euro owed much more to the grandiose posturing of politicians than to economic rationality.

    Writing in the Guardian on 14 August 2000, for example, I warned that “in a single economy, subject to a single monetary policy, productive capacity will concentrate in the most productive parts of that economy. Monetary policy will necessarily be framed in the interests of that most productive part. Other less productive parts will find it difficult to live with unsuitable monetary conditions. In the long run, they will, in effect, close down. This loss of economic activity will eventually depress the level of demand and activity in the economy as a whole.”

    I had in mind exactly the situation the Greeks now find themselves in.  The Greeks’ own foolishness may have contributed to their plight, but they were urged on into a quite unsuitable set of obligations by senior – and wealthier – partners who assured them that all would be well.

    Those senior politicians and bankers who insisted that the euro was a valuable and necessary step towards greater European unity (for which read the emergence of a European superstate, with a single Europe-wide government) must have known that bringing widely disparate parts of a wider European economy, with all their differing strengths and more particularly weaknesses and – most importantly – stages of development, under a single monetary policy would impose huge strains on the weaker members.

    The reality has, however, turned out to be even more cruelly callous of Greek (and perhaps, in due course, of Portuguese and Irish, and even Spanish and Italian) interests than even we Jeremiahs had warned.

    The euro has, in effect, betrayed the Greeks twice over.  First, they were duped into believing that monetary conditions which were generous enough to allow the Germans to develop and expand could be accommodated in Greece without creating a borrowing and asset bubble that would eventually burst.

    And, secondly, they had been led to believe that, if the going got too tough, the quid pro quo for taking on the challenge of sticking with the euro and feeling the pain of that for a time, was that the richer partners would come to their aid, with loans and regional assistance packages to ease them back into a prosperous future within the eurozone.

    Such an implicit guarantee was after all the only condition on which a weak and under-developed economy like Greece could possibly take the risk of footing it with an economic powerhouse like Germany.

    Foolish Greeks!  They should have got it in writing.  When it came to the reckoning, a German Chancellor – answerable to German taxpayers – showed herself unwilling to honour the cheque.  The Greeks, having been lured into the trap, now find that their gaolers have walked away with the key.

    The “remedies” so far applied to this desperate situation do no more than buy time while the politicians and bankers work out how much they can salvage.  The cure they prescribe for Greece is, of course, worse than the disease.  The time bought is merely a further period during which ordinary Greeks are required – in a futile attempted defiance of economic logic – to make the attempt to repay huge debt while decimating what they produce.

    The authors of the catastrophe meanwhile will tolerate no questioning of their grand design.  People may suffer, austerity and penury may rule, countries may founder, but the sanctity of the euro project must not be questioned.  Nor must be the right of bankers – however irresponsible their lending – to reclaim what they’re owed, plus interest.

    In these circumstances, what should the Greeks do?  Their government has no doubt that they must bite the bullet and condemn themselves to hard times for a generation or more.  The ordinary Greek, however, says that it is those who created the disaster who should bear the brunt.

    I do not often agree with Boris Johnson.  But, on this occasion, he is right.  If I have to choose between the posturing of politicians and the greed of bankers on the one hand, and the decent lives of ordinary people on the other, there is no choice.  The Greeks must default, abandon the euro and make a fresh start.

    Bryan Gould

    21 June 2011