The eurozone must stop playing the blame game
Published in Business Spectator (Melbourne), 2 July 2015
Okay, my dear Business Spectator readers. For the past five years I have been trying to deliver you balanced and well-researched columns, with the odd provocation thrown in for entertainment. Today, on day one after the Greek default, I just cannot do that. Because I am angry.
So with apologies to you and the fantastic Business Spectator editors, here is my Athens rant.
The past week must have been the most extraordinary yet in the never-ending euro crisis. I just cannot recall anything like it ever happening before. What we have witnessed is an incredible combination of political dilettantism, chutzpah and aggression.
No-one in this euro game is innocent. Everyone involved has to take their share of the blame and acknowledge their roles in the escalating crisis.
To start with the original sin of the euro crisis, Greece should have never, ever been made a part of the eurozone. And the eurozone should have never happened in the first place.
The whole idea of uniting vastly different European economies under one currency, one interest rate and one exchange was not just folly; it was madness. It had nothing to do with economics because it was so obviously not an optimum currency area; it was always just about political power.
If Germany had not needed France’s approval for re-unification in 1990, the Germans would have never given up their deutschemark voluntarily. But that was the price they had to pay for France accepting a bigger neighbour to the east. The French thought that binding Germany into the corset of a monetary union would curb her power. What a colossal miscalculation.
The next grave mistake was admitting Greece into the club. Again, this had nothing to do with economics and everything with symbolism. Greece, the supposed cradle of democracy, may have been an economic basket case for centuries. But Europe without Greece just did not feel right.
There was no shortage of critical voices at the time. Germany’s former economics minister Otto Graf Lambsdorff voted against letting Greece into the eurozone when the Bundestag decided on the matter. He warned that Greece was just not ready, but Lambsdorff and hundreds of economics professors writing petitions against the euro were just ignored.
When European Monetary Union started, the rules that were supposed to govern the project were never followed. They were barely worth the paper they were printed on. Deficit and debt rules, the no bailout rule, the mandate to keep the European Central Bank focussed on just price stability and independent: When push came to shove, none of these rules mattered. The European Union never followed any of them. How on earth were they expecting anyone to develop trust in their actions, let alone the euro?
Various Greek governments deserve a lot of the blame for their country’s crisis. It was the mainstream Greek centre-left and centre-right parties that overspent, fiddled their statistics, found ingenious ways of clandestinely borrowing — all the while they proved themselves incapable of reforming their county. Yes, the current Syriza government is a disaster. But to be fair to Tsipras, Varoufakis & co., they inherited a mess of a country.
Other European political leaders are just as guilty of the disaster around Athens. Back in 2010, when it was obvious what a catastrophe the euro had caused in Greece, German Chancellor Angela Merkel briefly wanted to do what is right: kick Greece out of the eurozone. Under pressure from other European countries and the US government, she quickly changed her tune. Ever since, the EU has been trying to fight debt with more debt.
The result of all of this is simple: The private sector managed to get out of Greece while all risks were transferred to European taxpayers. Privatise the gains, socialise the losses. Sorry if I sound like a socialist, but that is precisely what happened.
And what did all of this really achieve? Well, after five years Greece is more, not less indebted than before. Its economy has shrunk by 25 percent since the peak. Its unemployment rate is 26 percent. There is no sign of growth but growing tension between Greece and the rest of Europe.
The only good idea in the bailout process was to engage the International Monetary Fund in the packages. After all, the IMF has the necessary knowledge to turn around countries. However, led by its French directors Dominique Strauss-Kahn and Christine Lagarde, the IMF did not play the role of an independent arbitrator but that of an interested player. Greece became the IMF’s largest ever bailout, even though it is a small (and relatively rich) country.
In a world that is becoming more Asian, the IMF became more European. It paid too much attention to Greece and invested way too much money. Had it behaved in a similar way if it had not been about a European country? Had it done the same if it had not been headed by a former French politician? To ask these questions is to answer them.
Finally, the current Greek government. What Tsipras and Varoufakis have delivered in recent months must be the worst ever example of international diplomacy. Announce something one day and propose the opposite a day later. Procrastinate around decision-making and arrive unprepared to important meetings. Threaten European neighbours while asking them for help. Saying one thing in Athens and something completely different in Brussels. Charm Vladimir Putin’s Russia and call the IMF a criminal organisation. With no due respect, this Greek government is one of the worst the world has ever seen.
Even the Greek government’s seemingly democratic idea of holding a referendum is pure cynicism. Its only purpose is to buy more time. The question on the ballot paper is unintelligible. And no matter what the public’s answer will be, it does not change anything about Greece’s position in Europe.
Don’t get me wrong: I love direct democracy and would like to see more of it. But rather than asking the Greeks if they want to have their cake and eat it, maybe we should ask the Germans whether they want to guarantee more Greek loans?
As I said, this is an unbalanced rant. No-one in this crisis is blameless: not the Greeks, not the Germans, not the European Commission, not the European Central Bank and least of all the International Monetary Fund.
There is only one hope. Now that Greece is finally and officially bankrupt, perhaps we might eventually see something resembling a solution to the crisis. How about Greece exiting the eurozone, devaluing its new currency, default on its debt and reform its economy? I have been arguing this case for five years in this column, and I am not the only economist who has been saying so.
Will European leaders finally listen to us?