Why the battered Greeks shouldn’t head for a Grexit

ON ARRIVAL on the tourist island of Crete, I was greeted like a conquering hero at the normally sullen setting of the Enterprise car hire desk. ‘Ah from Britain,’ said the serious looking, bespectacled man behind the counter. ‘You had the strength to vote to leave the European Union. Greece should have the courage to do the same,’ he said to the smiling approval of his female colleague sitting next to him.

Brexit may have horrified the elites of Brussels, and stimulated the sleepy financial centres of Frankfurt and Paris into believing they can capture financial leadership from the City of London, but at the vortex of euroland here in Greece, matters look very different.

Five years of economic austerity and the blunt refusal in Brussels and Frankfurt, home of the European Central Bank, to deliver genuine relief from the country’s debt burden, is still having a devastating impact on the Greek economy and its people.

If it were not for Brexit and the failed bloody coup attempt in neighbouring Turkey, Greece would once again be up in lights this summer.

The Left-wing government headed by Alexis Tsipras must find €3.5bn to make debt repayments that fall due this month and find €85bn by 2018.

This is a requirement that is described by the International Monetary Fund as ‘highly unsustainable’. What Brussels and Frankfurt have done to the Greek economy and the Greek people since the euroland crisis flared here in 2010 is unconscionable. There was, admittedly, much wrong with the governance of the nation and the management of public finances. Nevertheless, those on the Left who complain so vehemently about cuts in Britain should take a close look at what real austerity means.

A former Greek cabinet minister and economics professor at the University of Athens proclaimed in conversation here that he didn’t want to sound like the goddess Cassandra, prophetess of doom who predicted the fall of Troy, but there was little other choice.

WHAT had begun as an economic crisis had transmogrified into a ‘social and political farce’ exacerbated by the internal dysfunction of governance in Greece. The Troika of the IMF, the European Commission and the European Central Bank had failed.

The scale of that failure is startling. Since the beginning of the eurozone crisis in 2010 the total output of the Greek economy has tumbled by 25pc. Personal disposable income has fallen by 40pc. Some 410,000 of the most enterprising Greeks have simply packed their bags and left the country. Foreign direct investment had fallen off a cliff.

Despite surging unemployment productivity is still falling, the population had been forced to accept €25bn in cuts to wages and pensions and sacrificed €4bn of exports.

The consequence of all this have been a collapse in investment and social disruption.

Those with the least have suffered the most, but middle-class incomes have plummeted and the best-off elements of society has suffered even bigger losses: but no one much cares about them. Politically, the economic disruption has handed power to the former Marxists of Syriza and the fascists of Golden Dawn.

As one successful Cretan entrepreneur described it to me, ‘there is no difference except Golden Dawn wear black T-shirts with fascist emblems, and Syriza tends towards red T-shirts and shabby suits’.

Faced with this ghastly picture and banks which are too poor to lend, the last best hope might appear to follow the British example and vote to leave: Grexit.

Certainly that might seem the best escape route from the rules, regulations and refusal of debt relief which is still the prevailing mood in Brussels despite a softening of the IMF position.

But the feeling among policymakers, financiers and Greek economic gurus is that the boat may have been missed.

Devaluation and default on debt may have worked five years ago when the debt crisis first erupted, but it wouldn’t be effective any longer.

Brexit may seem like a leap in the dark for Britain, lack of trade negotiators or not, but the UK has a durable governance structure that can work its way through the revolutionary change to EU relations.

Greece no longer has that luxury. If it restored the drachma (the pre-eurozone Greek currency) and massively devalued it, it is very questionable that it could gain competitive advantage since it has little to sell except for tourism.

Even that is hurting because of the terror scares that have affected the whole sector.

Indeed, the fear is that a lying, incompetent Left-wing led government, built on the sands of populism learnt at the University of Essex, could turn Greece into Europe’s Venezuela – a country destroyed by Left-wing extremist and centralist economic policies.

What Greece needs is the breathing space afforded by proper debt relief and the support of its Northern European partners in the shape of inward investment and fiscal transfers.

Slowly but surely governance reforms, entrepreneurship and a more moderate government might follow.

Grexit would be like handing the asylum over to the lunatics without safeguards.