The Corner

The Economics of Procrustes

While Greece has (thanks, not least to the activities of its political and bureaucratic class) contributed a great deal to its own tragedy, it’s also worth mentioning (not for the first time) that the mismanagement of the euro zone has up until the last couple of  years greatly benefitted Germany. By switching from the Deutschemark to the euro, Germany effectively pulled off a double win. It (effectively) arranged a concealed devaluation, thus helping its export sector without infuriating German voters (who were wedded to the idea of a strong currency). But Germany’s exporters gained another advantage too. Those of their euro zone competitors who had historically struggled to compete with Germany were no longer able to resort to their old trick of restoring price competitiveness through devaluation. Once in the euro zone, that option was closed, and Germany lept further ahead. Now the bill for that, as for so much else, is falling due. And, as we all know, Germany’s not happy.

All that as background for a fine new piece in the Daily Telegraph by Peter Oborne, author of the no less fine Guilty Men:

[T]he fall in national output during the Depression – from peak to trough – was [in Britain]  never more than 10 per cent. In Greece, gross domestic product is already down about 13 per cent since 2008, and according to experts is likely to fall a further 7 per cent by the end of this year….Yet all the evidence suggests that the European elite could not give a damn. Earlier this week Olli Rehn, the EU’s top economist, warned of “devastating consequences” if Greece defaults. The context of his comments suggests, however, that he was thinking just as much of the devastating consequences that would flow for the rest of Europe, rather than for the Greeks themselves.

 Another official was quoted in the Financial Times as saying that Germany, Finland and the Netherlands are “losing patience” with Greece, with apparently not even a passing thought for the real victims of this increasingly horrific saga. Though the euro-elite seems not to care, life in Greece, the home of European civilisation, has become unbearable.

 Perhaps 100,000 businesses have folded, and many more are collapsing. Suicides are sharply up, homicides have reportedly doubled, with tens of thousands being made homeless. Life in the rural areas, which are returning to barter, is bearable. In the towns it is harsh and for minorities – above all the Albanians, who have no rights and have long taken the jobs Greeks did not want – it is terrifying.

This is only the start, however. Matters will get much worse over the coming months, and this social and moral disaster has already started to spread to other southern European countries such as Italy, Portugal and Spain. It is not just families that are suffering – Greek institutions are being torn to shreds. Unlike Britain amid the economic devastation of the Thirties, Greece cannot look back towards centuries of more or less stable parliamentary democracy. It is scarcely a generation since the country emerged from a military dictatorship and, with parts of the country now lawless, sinister forces are once again on the rise. Only last autumn, extremist parties accounted for about 30 per cent of the popular vote. Now the hard Left and hard Right stand at about 50 per cent and surging. It must be said that this disenchantment with democracy has been fanned by the EU’s own meddling, and in particular its imposition of Lucas Papademos as a puppet prime minister…

 In these terrible circumstances, how can the British liberal Left, which claims to place such value on compassion and decency, continue to support the EU? I am old enough to recall their rhetoric when Margaret Thatcher was driving through her monetarist policies as a response to the recession of the early Eighties. Many of the attacks were incredibly personal and vicious. The British prime minister (who, of course, was later to warn so presciently against monetary union) was accused of lacking any kind of compassion or humanity. Yet the loss of economic output during the 1979-82 recession was scarcely 6 per cent, less than a third of the scale of the depression now being suffered by the unfortunate Greeks. Unemployment peaked at 10.8 per cent, just over half of where Greece is now.

 The reality is that Margaret Thatcher was an infinitely more compassionate and pragmatic figure than [EU Commissioner] Olli Rehn and his appalling associates. She would never have destroyed an entire nation on the back of an economic dogma.

One of the basic truths of politics is that the Left is far more oblivious to human suffering than the Right. The Left always speaks the language of compassion, but rarely means it. It favours ends over means. The crushing of Greece, and the bankruptcy of her citizens, is of little consequence if it serves the greater good of monetary union…

The presence of the Lib Dems, fervent euro supporters, as part of [Brritain’s governing] Coalition, has become a problem. It can no longer be morally right for Britain to support the European single currency, a catastrophic experiment that is inflicting human devastation on such a scale. Britain has historically stood up for the underdog, but shamefully, [fimnance minister] George Osborne has steadily lent his support to the eurozone.

 Thus far only one British political leader, Ukip’s Nigel Farrage, has had the clarity of purpose to state the obvious – that Greece must be allowed to default and devalue. Leaving all other considerations to one side, humanity alone should press David Cameron into splitting with Brussels and belatedly coming to the rescue of Greece.

Read the whole thing.


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