The ul­ti­mate re­spon­si­bil­ity for Greece still lies with Greece

Financial Mirror (Cyprus) - - FRONT PAGE -

It should be quite clear by now what mem­ber­ship of the Ger­man-dom­i­nated cur­rency union en­tails, es­pe­cially for Greeks who have seen their coun­try’s un­em­ploy­ment rate and youth un­em­ploy­ment rate bal­loon in the du­ra­tion of the euro cri­sis.

The euro is a


badly de­signed cur­rency. (And that ap­plies not just to Greece and south­ern Europe, but also to Ger­many and north­ern Europe, as we are likely to see should the cur­rency union pre­vail with­out the cre­ation of a full fis­cal union). The har­mon­i­sa­tion of bor­row­ing costs that oc­curred in the wake of the cur­rency’s cre­ation — flood­ing the pe­riph­ery with cheap money — is a long-shat­tered il­lu­sion. Worse, the Euro­pean Cen­tral Bank only half­heart­edly stands be­hind sov­er­eign debtors, sup­port which as we have seen in Greece can be re­moved al­to­gether should a na­tional gov­ern­ment stray too far from the or­dolib­eral pri­vatis­ing or­tho­doxy de­manded by Ger­many and her al­lies.

This ef­fec­tively turns the euro into a bad par­ody of the gold stan­dard. The euro has be­come a cri­sis mag­ni­fier and a cri­sis ac­cel­er­a­tor, turn­ing what by his­tor­i­cal stan­dards were rel­a­tively mild Greek fis­cal trou­bles that might have been oth­er­wise ame­lio­rated through a lit­tle de­val­u­a­tion, a lit­tle in­fla­tion, and more ef­fi­cient tax col­lec­tion into an al­most decade-span­ning de­fla­tion­ary saga from which Greece and Europe is yet to emerge.

And yet even now af­ter years of de­fla­tion and mass un­em­ploy­ment, above 70% of Greeks want to stay in the euro. That means stay­ing un­der the rule of hard-nosed, hard­faced aus­te­ri­ans such as Wolf­gang Schaüble, An­gela Merkel and Jeroen Di­js­sel­bloem who de­mand the hated aus­ter­ity mea­sures that Greeks re­jected when they elected Syriza and re­jected again when they voted ‘no’ in the ref­er­en­dum on the bailout, terms which Tsipras has now al­most en­tirely ca­pit­u­lated to.

Of course, no­body is say­ing that re­in­stat­ing the drachma would solve Greece’s prob­lems en­tirely. It would likely cause a whole new slew of prob­lems, in­clud­ing bank runs, the col­lapse of the Greek bank­ing sys­tem, and large-scale in­fla­tion. Yet it would, at least, set Greece on the path to a so­lu­tion. Re­main­ing in the eu­ro­zone un­der the charge of politi­cians who couldn’t seem to care less about Greek un­em­ploy­ment, debt de­fla­tion, and who don’t rec­o­gise the ne­ces­sity of debt re­lief in putting Greece onto a more sus­tain­able eco­nomic tra­jec­tory just kicks the can down the road. It doesn’t deal with the prob­lem. It just pre­tends that maybe, at some point in the fu­ture the prob­lem will be solved. Of course, with the Greek debt re­main­ing un­sus­tain­able — even in the eyes of the IMF — and the cred­i­tors re­main­ing un­for­giv­ing, this seems more like a mat­ter of post­pon­ing Grexit than fix­ing Greece. And mean­while, the bat­tered Greek econ­omy must just eat up huge hikes in taxes, in­clud­ing a 10% VAT hike, and the bat­tered Greek poor must just eat up more huge rounds of gov­ern­ment spend­ing cuts and pri­vati­sa­tions to as­suage for­eign cred­i­tors.

Tsipras and his party have com­pletely failed to achieve its ob­jec­tive of an eas­ing of aus­ter­ity. They have com­pletely failed to achieve a set­tle­ment that deals with the im­me­di­ate trou­bles low growth and mass un­em­ploy­ment first, and the long-term is­sues re­lat­ing to pen­sions, spend­ing and tax col­lec­tion over the longer-term. (In medicine, deal­ing with the heart at­tack be­fore the blood pres­sure is­sues would be ob­vi­ous. But not so, it seems, in eco­nom­ics).

Its strat­egy seems to have been to brusquely ask its cred­i­tors for re­lief. Its cred­i­tors — for rea­sons, I think, of rigid or­tho­doxy — thumbed their nose at Greece, por­tray­ing the Greeks as a bunch of stupid, rude, lazy buf­foons. In the long run, this is coun­ter­pro­duc­tive for the cred­i­tors as much as it is for the Greeks, if they want to see re­pay­ment of the debt, and eco­nomic growth in the con­ti­nent.

But be­yond ask­ing, and mak­ing a few ref­er­ences to Ger­man debt write­downs in the wake of the Sec­ond World War, as well as the Nazi oc­cu­pa­tion of Greece, Tsipras ap­pears to have had no strat­egy at all. It seems Tsipras — like the vast ma­jor­ity of his fel­low Greeks — doesn’t want to jeop­ar­dise Greece’s euro mem­ber­ship. And, as Paul Krug­man ar­gues, this was never go­ing to be enough to get Greece a bet­ter deal. The choice the Greeks should have of­fered the cred­i­tors was “give us sus­tain­able terms or we leave”. If the cred­i­tors didn’t have the imag­i­na­tion to re­alise that giv­ing the Greeks sus­tain­able terms would be good for Europe as a whole (in­clud­ing the cred­i­tors), then the Greeks should have had the chutz­pah to leave.

Be­ing in a cur­rency union run by a bunch of or­dolib­er­als who are quite happy to de­stroy the vil­lage with mass un­em­ploy­ment and eco­nomic de­pres­sion in or­der to “save it” is not safe. It’s not hy­gienic. It is — for Greece, as well as the other eu­ro­zone mem­bers — dan­ger­ous.

And at this point, we must ad­mit that it is self-in­flicted. If Greece wants to stay in the Ger­man-dom­i­nated cur­rency union, this is the cost. They — not the Greeks — are mak­ing the rules. Maybe the Euro­pean pro­ject is a form of or­dolib­eral im­pe­ri­al­ism. But — to be fair — it is not be­ing im­posed at the end of a ri­fle. If the Greeks don’t like liv­ing by Merkel and Schaüble’s ridicu­lous rules — heck, if Greece truly wishes to be a sov­er­eign coun­try and not a Ger­man vas­sal — they must move out. The fact that the Greeks are un­will­ing to do this is pro­long­ing their cri­sis and com­pound­ing their tragedy.

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