Greek Tragedy - From Hero to Euro
Letter From London
All of last week, my multiple communication inboxes have been flashing the same message at me: “Have the Greeks gone stark raving mad?” Quite possibly, but personally, no, I don’t think they are any more mad than the Germans, French, Italians, Brits, ECB, IMF, G20 and bond market traders. Not to mention the allegedly erudite Anglo-Saxon media and assorted economists.
Well, so another G20 summit ended with, as one commentator put it, leaders of the most powerful nations on earth checking their smartphones to see what was happening in Athens. The conventional wisdom in the Anglosphere — and in market circles, of course — is to blame the Greeks for creating more chaos just as it seemed as if a European bailout deal had been finalised. That happens, actually, not to be the case.
In case you’re either (a) like me, bored to death of the eurozone crisis, and hoping Greece does leave the euro and creates some real excitement, (b) wondering what Greece has to do with the price of your onions, (c) losing money because global markets are behaving like demented yo-yos, or (d) trying to make some sense of all the conflicting views, news, twists and turns coming out of Europe, then this is what’s been going on over the past week.
Like most complicated stuff and guff, it’s really rather simple. Sometime last week, Germany, France and other such assorted European grandees finally decided on a comprehensive rescue package for Greece. They said they’d increase the money power of the EFSF, the fund supposed to handle all these things, by billions. They said that creditors (read: French and German banks) would write off up to 50% of their loans to Greece. And they said that the Greeks would have to agree to live on bread and water for the next decade or so, in the hope that at the end of 20 years, they’d still owe more than what their GDP is. The fascinating thing about the deal, which markets swallowed, is that nobody seemed to have a clue who was going to put in the extra money in the EFSF, and everyone in Europe seemed to think that China and maybe India, should. Europe’s EFSF leaders made a much-publicised trip to China, ostensibly with begging bowl in hand.
That is, without doubt, the silliest notion I’ve heard of in a while. In the first place, there’s absolutely no reason for China to put its money where Germany, Netherlands, UK or US refuse to. The argument is that China’s export-dependent economy will be hit if markets in Europe go under. Germany, after China, runs one of the biggest budget surpluses. One assumes that the eurozone is a significant trading partner, and if it goes into prolonged recession, who are the Germans going to export their highend manufacturing goods to? China?
As of now, Germany and North European countries have more than enough capital to beef up the EFSF, or back eurobonds, or whatever. In a fit of Teutonic stubbornness, they just won’t. Germany also refuses to let the European Central Bank step in and act as a super central bank. It would, as we are told, undermine Ms Merkel’s domestic political position and support of the euro.
The Brics, naturally, would rather beef up the IMF — well, it would also raise their financial clout in that forum, something they’ve been wanting for a while. The US doesn’t want to pay in more to the IMF, because it already provides the biggest chunk of money, and the Americans don’t want to keep doling out cash for various broke European nations. Which, frankly, is what the entire thing boils down to. The rest of the world sees no reason why we should bail out Europe when they have the money, and the mechanisms — like the ECB and the EFSF — to fix things, but in a fit of Teutonic stubbornness, won’t.
In a dramatic turn, which visibly broke the ranks of the united ‘no-break-upof-the-euro’ stance, Greek prime minister George Papandreou called a referendum, or public plebiscite, for the Greek people to accept the terms of the new package. And was universally reviled by all and sundry, summarily summoned by Sarkozy and Merkel and faced a revolt in his own ranks.
It turns out to have been a master move, politically. He not only put the spotlight back where it belongs — not on bond traders and bankers and other European politicians but on the Greek people who are being condemned to grinding poverty for years — he also withdrew the plan at the last minute when his own parliament and party, which has been calling for him to go, recoiled in shock at the concept of a referendum. He also managed to survive a critical no-confidence motion in Greek Parliament.
What all the people roundly condemning the Greek prime minister seem to forget is that Greece is a democracy — and hasn’t always been, not even in the last 50 years. Mr Papandreou has as much right to plead domestic political excuses as Ms Merkel does. He is elected by the Greeks, not appointed by Ms Merkel and Mr Sarkozy. And finally, if the Greek people do not want to be part of the eurozone, they should be given every right to get out.
So, the consequences will be disastrous for Greece, with banks going bust and hyperinflation and all that. But it will also be disastrous for everyone else, mainly Italy, Germany, France and UK. If they accept the current terms, everyone else gets off a bit easy, but the Greeks continue to get the worst of the bargain. Keeping the eurozone together at this stage is more crucial for other European nations than for Greece.
Personally, I think the Greeks should continue to do things like disrupt G20 summits, and threaten to quit the euro and play this one to the edge of the abyss. It might bring countries like Germany to its senses. /quote
ET - 7 Nov 2011