Apocalypse postponed

A pensioner is squeezed while waiting outside a bank to receive part of her pension in Athens. Greek society is on its knees and the people are in need of humanitarian aid. Now is the time to help it rebuild not force it to grovel in the dust. Photo: Alki

A pensioner is squeezed while waiting outside a bank to receive part of her pension in Athens. Greek society is on its knees and the people are in need of humanitarian aid. Now is the time to help it rebuild not force it to grovel in the dust. Photo: Alki

Monday, July 13, was the morning after the night before in Brussels. After an acrimonious marathon session Eurozone leaders had postponed the economic fate of Greece for a few more months. The can had satisfactorily been kicked down the road again.

But at what price?

At best, it was a bloody nose for Tsipras, his punishment for having wasted the past six months and pushed his country into another needless recession. At worst, it was an attempt to unseat him which, in the event, has failed. Far worse, though, the crisis has split Europe and left the euro battered and bruised.

The Greek parliament has gritted its teeth and passed the measures requested by Brussels: draconian cuts, tax increases and economic reforms intended to help Greece pay off its debts and qualify for new eurozone loans.

But Greece’s future success in implementing what it has been forced to sign up to is questionable. Even in the United Kingdom, painful Thatcherite reforms took years to bring about and they happened because the government believed in them, not because of the diktat of Brussels.

After the First World War and the disaster of the Treaty of Versailles, we have been reminded that needlessly squeezing a ruined country, however great its wrongs, is in nobody’s long-term interests. That was Germany in 1919. Today, it is Greece.

It does not take a fanatical Keynesian economist to see how financial expropriations from a ruined state become self-defeating. Germany, itself the victim of such treatment in 1919, should appreciate the pointless cruelty.

Greece is a society on its knees, its economy in ruins and its people in need of humanitarian aid – in no small part due to clumsily designed past bailouts led by Germany. Yes, Greek politicians have brought all this down on their heads. But now is the time to help it rebuild, not force it to grovel in the dust.

That’s the euro for you. In the end, everybody loses

Following World War II, Germany’s debts were all but written off. The Marshall Plan was introduced. Germany became the powerhouse of Europe it is today. This lesson applies just as much to Greece today as to Germany in 1919 and 1945.

Eurozone politicians, it would appear, would rather pull the temple down over their heads than forgive their debts. For the first time in 16 years, Eurozone leaders openly embarked on technical discussions about how to expel one of their members.

This currency, which was once described by its central banker, Mario Draghi, as “irreversible”, is nothing of the sort. No wonder Draghi at one stage last weekend engaged in a furious row with German Finance Minister Wolfgang Schauble about the German plan for a “temporary exit” from the euro by Greece.

The genie is out of the bottle. The euro is no longer a single currency. It is a fixed exchange rate system.

Brussels has admitted that a euro exit is no longer inconceivable. The next time there is any doubt about the financial viability of any of its members – whether Greece, Portugal, Italy, Spain or France – speculators will have an open invitation to attack, just as they pillaged the Exchange Rate Mechanism in the early 1990s.

What happened in Brussels almost a fortnight ago was the reversion of Europe to the power play of the 19th and early 20th century, in which the stronger forced its will on the weaker. It may be no exaggeration to say that the post-1945 European dream has arrived at a tipping point.

Many German commentators argue that in a single weekend their nation undid 70 years of post-war diplomacy. Seven decades of endeavour to rehabilitate the country’s image may have been wrecked by their unremitting effort to lead the push for the toughest possible deal with Greece.

Germany has taken over the role of the bad cop in Brussels. As the lead nation in the Eurozone, it is now going through what the United States has to experience daily in the world: respected, but not necessarily loved.

The great tragedy is that the third bailout in five years for Greece is doomed to fail. Will a fourth beckon? And then what?

A report by the International Monetary Fund (which has long felt it should not have been part of the so-called troika), has exposed that the European Union’s maths, so aggressively rammed down Greek throats on July 12, simply does not add up.

Eurozone leaders bludgeoned Greece into measures in the all-night summit on July 12/13 despite knowing that the International Monetary Fund had warned that more austerity for Greece and a third bailout programme worth €86 billion would not help it escape from its debt trap.

The devastating analysis by the IMF has revealed that Greece will require radical debt relief, either as part of a future European Stability Mechanism or else through debt forgiveness (write-downs) to stabilise its economy. The plan to use the European Financial Stabilisation Mechanism, which brings about liabilities for all 28 EU members, has been roundly rejected by non-eurozone members whose liabilities have been excluded. And write-downs are measures that other countries, led by Germany, have ruled out. Further difficult negotiations will now follow.

The IMF is rightly worried that the Eurozone, which is primarily a political, not an economic, institution is evading the issue of Greece’s growing mountain of debt. This now stands at €320 billion or about 200 per cent of GDP.

The options suggested in the IMF report are politically unpalatable to many Eurozone countries, whose voters – including Maltese voters – were told they would never have to take responsibility for Greek debts. Huge write-offs loom for all taxpayers. That’s the euro for you. In the end, everybody loses.

Most importantly, the Achilles heel, to borrow a phrase, in the new bailout plan for Greece lies in its implementation. The proposal by the German Minister of Finance to set up a €50 billion fund of Greek assets, originally in Luxembourg but now in Athens, is not only contentious but also almost certainly unachievable.

The privatisation of assets is envisaged as eventual payment for the recapitalisation of Greek banks, debt repayments and investment. The problem is that this is much the same figure that Greece had been promising in 2010 in return for the first multi-billion bailout.

Since then, less than €10 billion has been privatised. It is highly unlikely the Greeks can do better this time.

On July 12/13, the eurozone members did the expensive minimum to bolster confidence in the euro currency. The damage that has been done means the exercise cannot be repeated without causing deep fissures in the Union.

If Greece fails to implement its cost-cutting and tax-raising promises, then funds will not be released and the country will again founder. What price Grexit then?

In late 2010, former German Chancellor Helmut Schmidt predicted that within 20 years the euro’s membership would be whittled down to a “hard core” of France, Germany and the Netherlands. He may be wrong about France, but who would gainsay a northern core in the future?

Unless this crisis forces the euro’s members to really embrace fiscal and political integration – to correct the fundamental design flaw at the heart of the currency – one suspects Schmidt may be proved right.

Apocalypse has merely been postponed. Malta, beware.


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