What has kept things in check until now is that almost all European leaders are in thrall to the notion of “ever-closer union.”
Most of the smart money has been assuming throughout this latest episode of the euro crisis that the Germans would eventually bail out the Greeks one more time. That may still happen. Yet with Greece now in technical default to the International Monetary Fund, and uncertainty about whether Greeks will accept or reject new bailout terms in next Sunday’s referendum, there is a real chance that the country leaves the euro, and fear is spreading across Europe.
Some of this fear arises from the growing hostility in Brussels and Berlin to the Greek prime minister, Alexis Tsipras, and his leftist Syriza government. This is a government inspired by Darius Fo’s neo-anarchist philosophy of “Can’t Pay, Won’t Pay.” It wants to stay within the euro currency but without the “austerity” that doing so requires.
Athens can’t pay its bills (including its accumulated debt and debt interest) by printing drachma, as in pre-euro days. Yet the ruling party was elected to maintain Greece’s generous pensions and welfare payments, so it needs still more of other people’s money. It may finally have run out of that, and ordinary Greeks are waking up to the fact that their savings, pensions, and other benefits may be at risk.
Germany is not the main problem for Athens here. The euro is a good deal for Berlin — an undervalued currency that helps German industry to run up large export surpluses both with other EU countries like Greece and with wider markets. Admittedly, Mediterranean Europe needs a constant flow of subsidies to pay for its people and industries made workless by membership of what is for them an overvalued currency. But Germany shares the cost of these transfer payments with other EU countries, such as Latvia and Slovakia, which are often poorer than Greece. Increasingly, these countries object to paying other people’s bills.
What has kept that anger in check until now is that almost all European leaders are in thrall to the notion of “ever-closer union” — or in the case of the euro to the notion of “irreversibility.” The euro was designed to be a roach motel: You can check in but you can’t check out. That “no exit” provision was meant to provide a fiscal discipline to member states. If they couldn’t devalue their currency or print euros, they would have to keep their spending and borrowing in check.
It didn’t work, of course. For the first decade of the euro, the EU’s poorer countries all exploited the fiction that the euro made them as creditworthy as Germany, running up huge debts at cheap rates. When the 2008 crash occurred, the party came to end and the markets repriced their debts upward. But Spain, Portugal, Ireland, and Italy all swallowed tough fiscal and structural “reform” medicine in return for the loans, subsidies, and guarantees that Brussels, the IMF, and the European Central Bank gave them to stay solvent. So did Greece, until Syriza’s victory, which reversed some reforms previously accepted by Athens and began to talk the language of “Can’t Pay, Won’t Pay.”
Even that might not have prevented creditors from lending them more money (with implicit taxpayer guarantees). What seems to have stiffened the resolve of the European institutions is that Tsipras announced that he would put the last offer from Brussels to the Greek electorate and urge a “No” vote. Such a vote would probably strengthen Syriza’s hand politically, but it would have no other moral or democratic authority. Countries cannot vote themselves access to other national treasuries. But Brussels is allergic to even bogus hints of democratic authority and is now hoping against hope for a “Yes” vote and the fall of Syriza.
At the same time Syriza — which lacks commonsense but not ingenuity — is turning the “irreversibility” argument against Brussels. In response to revealingly vague threats from Jean-Claude Juncker that a Greek refusal to pay its debts would lead to the country’s departure from the euro, Athens replies that there is no legal or constitutional mechanism for leaving the euro. And it will go to the European court to prevent its expulsion.
Unless there are additional surprises before Sunday’s referendum, Greece will choose as follows. A No vote will likely lead to Greece under Syriza leaving the euro; a Yes vote will mean a new Greek government staying within the euro.
Neither side of this increasingly arcane dispute makes sense.
#related#The best all-round solution would be for Europe to arrange substantial debt relief for Greece in return for its leaving the euro. Greece would then switch to a new drachma that would fall against other currencies and make Greek exports and tourism cheaper and more attractive. After a turbulent, painful transition, Greece would then begin to recover from its prolonged recession. The country would still be burdened by a socialist government that thinks it can prosper by borrowing and taxing without limit. But even that burden would be less crippling than a currency that requires them to cut their standard of living by about 30 percent to compete with northern Europe — and Greece’s government is anyway in the hands of Greek democracy.
On the same principle, if Brussels and the ECB were to divide the euro into a cheaper “southern” euro and a higher-value “northern” euro, then Mediterranean Europe as a whole would begin a real recovery financed by growth and exports rather than by endless loans — and the taxpayers of northern Europe would keep more of their money. After the inevitable period of disruption, Europe as a whole would then enjoy more growth and a more balanced economy coupled with less wastage of wealth.
The Greeks are fighting to stay in the euro that requires them to embrace indefinitely the austerity they say they reject, and Europe’s main institutions and leaders are determined to imprison everyone in a currency that divides Europe into two enemy camps — rich donor nations and poor client nations. All this because of a superstitious belief in a currency not as a store of value or as a medium of exchange but as a symbol of eternal political unity.
In Greek mythology, the Shirt of Nessus was a poisoned garment that tormented the wearer when he put it on but tore his flesh to pieces if he took it off. Today, the Nessus Shirt seems to be tremendously fashionable. It’s very European.
But no sensible people die from an excess of fashion. Removing the Nessus shirt would be painful, but the poison would stop.