25 May 2015

Greece should exit the Euro and puncture Brussels’ imperial delusions


The Greek financial crisis has endured so long it has anaesthetised news consumers. It would be wrong to say it is off the radar of public awareness – it is still being reported in the media and the brinkmanship on both the debtors’ and creditors’ sides continues on its implausible course – but mainstream opinion takes the view it has surfeited on Greece: the European and wider public feels it is all Greeked out.

Greece resembles an elderly valetudinarian aunt who has been ailing for so long that when the end comes – as it inevitably must – it will be surprising. Greece took to her bed back in 2009 and is now in a persistent vegetative state, but with interested parties refusing to turn off her life support system. The successive crises and momentary rallies have created a switchback ride of erratic politico-economic circus artistry.

By January 2010 Greek/German debt yield spread exceeded 300 basis points. The following month the Athens government introduced its first austerity package, including a freeze on state salaries, a 10 per cent cut in bonuses and cuts in overtime working. A month later this was reinforced by a second austerity package which froze pensions, cut public sector wages, increased sales tax to 21 per cent and raised duty on fuel, cigarettes, alcohol, and luxury goods.

In April 2010 Greece formally requested an international bailout to which the EU, the ECB and the IMF were contributors. A general strike and rioting was the Greek public’s response to austerity measures. Nonetheless, further austerity programmes were announced as bankrupt Greece struggled to meet its obligations to creditors. This chaotic situation continued until January of this year when the anti-austerity faction won a general election and the hard-left Syriza party came to power.

Since then, Syriza has walked a tightrope of rhetoric, striving simultaneously to reassure its leftist supporters at home that it will not sell out to austerity and its international creditors that it intends to implement a reasonable reform programme. None of this posturing has any credibility. So, why has Greece survived so long within the Eurozone? Why has Germany, for example, not pulled the plug and rid itself of this importunate and chronic debtor?

Because these surreal negotiations bear no relation to the normal interaction between creditors and debtors, is the answer. Because the elephant in the room during all these supposedly financial deliberations is politics, specifically the infatuated imperial obsession of the Brussels apparatchiks. They are behaving in character because not only the euro currency but the entire European project has, from its inception, been a purely political exercise. At every stage in the development of the EU, financial realities have been subordinated to political aspirations.

That sedulously concealed fact is not only key to understanding the labyrinthine contortions of the Greek crisis, but the essential character of the EU. For all its free-market camouflage of competition law and pro-enterprise rhetoric, the European Union gives ideology primacy over economics. That is a statist, socialist mindset. It is what the Soviet Union did, with self-destructive consequences. The over-regulation and bureaucracy of Brussels are not incidental flaws that require reform, they are a reflection of the true character of the EU, which is instinctively socialist, albeit champagne neo-socialist rather than the old-fashioned agitprop leftism represented by Syriza.

The EU is in thrall to the old maxim of Prussian foreign policy: “We must grow greater or we shall grow less.” The parallel even extends to the fact that the EU – whose self-justification of last resort is the claim it has prevented war in Europe since 1945 – has even provoked a war in the Ukraine through its cack-handed intervention in a country surviving by knife-edge compromise between two rival cultures. An entity that will go to such lengths to expand will never countenance any contraction.

That is why Brussels will accommodate any ludicrous behaviour by Greece, to keep it within its empire. Brussels is clinging to Greece as George III tried to keep a grip on America. The outcome will be similarly disastrous for the deluded imperialists of Brussels. Greece must leave the Eurozone; Grexit is inevitable. That view is gaining wider acceptance as informed observers realise that the damage Greece will inflict by remaining within the single currency will be far greater than the containable disruption caused by her departure.

Commerzbank AG now believes there is a 50 per cent chance of Greece exiting the euro currency. Greek debt, which was 110 per cent of GDP at the onset of the crisis, is now 175 per cent of GDP. The IMF forecasts the Greek economy will have contracted by one fifth since 2009 by the end of this year. It is a sign of the approaching endgame that public discourse is now debating which would be the least damaging debts for Greece to default on, with the Syriza government’s victim of choice being the ECB, when €3.5bn in repayments falls due in July.

This shows that the goalposts are being moved again, with a scenario being touted whereby Greece defaults but remains within the euro. The vulnerability of large European banks to sovereign debt default is often cited as a main reason for propping up Greece; but the threat resides principally in the default, not whether it results in Grexit. How much more money can be pumped into Greece by the usual suspects without leaving reserve coffers dangerously depleted and unable to respond to other contingencies unrelated to Greece?

The reprehensibility of the Brussels oligarchy in this crisis dates back to the moment of Greece’s admission to the Eurozone, when the criteria were rigged to admit a potential basket case. The realistic option now is for Greek voters to grow up, recognise that euro membership is the cause, not the solution, of their problems and embrace Grexit and a devalued drachma. Of course there would be a couple of years of economic hell (but how much worse than the agony endured by clinging to the euro?) which at least would be finite, with recovery to follow.

The Brussels mentality which is holding Greece’s feet to the fire that is the single currency was instructively revealed in a recent opinion piece by members of the Eiffel Group and the Glienicke Group on the Bruegel website and highlighted by CapX. In the context of notional Grexit the article said “we should not underestimate the potential of spillovers from a switch in the mind-set of market participants which would no longer consider euro membership as an indefinite, irrevocable commitment”.

In other words, the single currency might unravel, compromising the whole EU project. It is time for the Brussels empire to accept decolonisation. There is much alarmist talk about the potential for contagion if Greece leaves the Eurozone; perhaps we should concern ourselves about the infection this toxic economy is spreading so long as it is inside the euro area.

Gerald Warner is a political commentator and writer.