By the time you read this article, the fate of Greece will have been sealed. Or will it? Notwithstanding the take-it-or-leave-it demands that have been made by the European Commission, the IMF and the ECB, will it be eurofudge or Grexit?
The notes and coins that were meant to symbolise European unity 16 years ago – a currency which Malta joined with great benefit to itself as a mark of an economy that had finally arrived – are now emblematic of one of the worst crises in the European Union’s history.
There has never been an example in history of lasting currency unions without first achieving political union. The endemic flaws in the construction of the single currency, and its political and economic fault-lines, lie exposed despite every effort to ameliorate them. The political and economic risks inherent in the euro’s design remain.
As we see so spectacularly in Greece, a country locked into a single currency with no possibility of exchange rate adjustment inevitably develops serious problems of economic competitiveness. Greece is heading to the brink of default.
Had the protagonists of the euro-currency realised the consequences of their actions, would they have been so enthusiastic about the new currency back in 1999? It is hard to think of another display of economic policymaking in modern history that has been so badly botched.
The eurogroup of finance ministers in 2010 refused to countenance Greece defaulting and this set in train an interminable sequence of bailouts – with possibly more to come.
Greece never belonged in the eurozone club in the first place. Athens cooked the books on debt statistics to help it meet the criteria for entry. German bankers protested in vain against Greece’s last-minute inclusion.
The end-game is nigh.
By the time of going to press, the ECB may have pulled the plug on emergency assistance to Greek banks, thus pushing the country into financial insolvency and banking collapse. But, then again, perhaps not.
Athens wants cash with as few conditions as possible, attempting to secure debt relief from its creditors (including a hefty €177 million owed to Malta) under the mantra of “solidarity” – as flexible and meaningless a word in euro-speak as “the national interest”.
For the Greeks the final deadline for clinching a deal with European allies was always yesterday, when the current bail-out extension expired. Then again, they may be able to postpone this into the future, say until August.
But at some point the country will need the extra money to pay its bills – pensions, public sector wages, hospitals. Otherwise, it will have to default.
If it defaulted, it could not be allowed to stay in the eurozone. But nor is it clear that compelling it to leave against its will would be much better. That would leave the country a fiscal pariah for decades. Its creditors, including Malta, would pursue it through the courts for its debts which, with a new, devalued currency, it would be ill-equipped to repay.
What we are seeing with both Grexit and Brexit is no less than the political and economic transformation of the continent
With no one willing to lend, Greece could turn for financing to Russia and China (the new contender for the World Bank). A Greek humanitarian disaster could be avoided, but at huge political cost. The economic depression in Greece could lead to the fall of the government and the election of the neo-Nazi Golden Dawn, currently the third largest party in Greece.
Alternatively, the EU might offer Greece a bribe to leave the euro – an amicable divorce – by writing off Greek debts in exchange for its departure until it could re-build its economy outside the eurozone and re-join.
Although it is clear that Greece is on a road to nowhere, my hunch is that there will be a compromise and that Greece will find some way of staying in the euro – however fraught that might be for Europe in the long run. Exasperating as the government in Athens is, neither it nor its frustrated European partners really want the country to leave. Avoiding divorce may seem better for papering over the European cracks on the deeply flawed eurozone. But is this marriage worth saving at any price?
What we are seeing with both Grexit and Brexit is no less than the political and economic transformation of the continent.
The prospect of Brexit in 2017 looms more serious – for both Britain and Europe.
The vexed relationship between Britain and the EU long pre-dates Prime David Minister Cameron. Despite Winston Churchill’s much-quoted 1946 speech in Zurich calling for a “United States of Europe”, it has troubled both British political parties for decades.
It was a Labour government that decided in 1950 to stand aside from Europe’s first fumbling efforts to form a coal and steel community. It was the Conservatives who took Britain into the European Economic Community in 1973. And it was Labour that then staged a renegotiation before holding (and winning) a referendum in 1975. The two parties have since alternated between bouts of euro-scepticism and (brief) bursts of enthusiasm.
Shortly before Cameron made his referendum pledge – in the face of a strongly Eurosceptic threat to his party by the popular insurgent UKIP – he had set up a review of the balance of competences between the EU and Britain. Oddly enough when the review published its 32-volume report and 3,000 pages of evidence last year, his government said almost nothing.
The reason is that in almost all areas the balance of advantage between Brussels and national governments is broadly sensible. Defence, tax, health and education remain largely national, whereas single market rules, competition and environmental policy are mostly European.
Only in a small number of areas, such as social policy regulations, is there an obvious good case for repatriation of powers.
Moreover, Britain already has many opt-outs. Wisely, it is not in the euro or the Schengen travel zone. It has a special budget rebate. Last year it also opted out of many justice and home affairs policies. Indeed, the areas of concern for the ordinary Briton in the street revolve around those issues that affect him daily.
In line with the feelings of many others throughout Europe, immigration and access to welfare benefits loom large. But the dead hand of interfering Brussels bureaucracy and, above all, the political commitment to “ever closer Union” evoke strong nationalist responses.
A reasoned case for Brexit is difficult to make. Just as many Scots voted to stay in the Union largely because of uncertainty over the alternative, so might many Britons when it comes to the EU. As happens with Norway and Switzerland, to retain full access to the EU’s single market, Britain would have to obey most of the rules (and pay into its budget) without having a say in them.
Most pragmatists, even those who dislike the rule from unelected bureaucrats in Brussels and the vacuous European Parliament, tend to come out for continuing membership. However, they may struggle to persuade British voters unless Cameron is in a position to present a deal which satisfies concerns about uncontrolled migration and the permanent entrenchment of national sovereignty.
A messy Grexit in 2015/16, followed by another likely European recession, could lead to a hardening of support for Brexit in 2016/17. Grexit and Brexit could turn out to be inextricably linked, with dire effects for Europe.