The EU evidently means to make an example of Greece. Yesterday, the European Central Bank, far from extending emergency credit to the Greek banks as had been hoped, toughened its conditions further. Thus did Brussels respond to an unwelcome referendum result.
Eurocrats, after all, could hardly have been clearer in their instructions to Greek voters. The Hellenes had been told, in no uncertain terms, to accept the EU’s offer and, indeed, to oust the Syriza-led government. The President of the European Parliament, Martin Schulz, called openly for Alexis Tsipras to be replaced by “a technocrat”.
But, not for the first time, those pesky Greeks had other ideas. They turned out in huge numbers to reject the ultimatum. Euro-enthusiasts intend to make them pay for that act of defiance.
There is more to the ECB’s behaviour than petulance – though bankers and finance ministers are as prone to that vice as anyone else. Supporters of the European project are terrified that Greece will end up making a successful go of monetary independence, and so inspiring other countries to follow.
Oh, sure, it’ll be very tough in the short term. There will be bank failures and lost deposits, lay-offs and shortages. But, frankly, after the hell of the past five years, Greeks are a lot more stoical about that prospect. The question now is whether, with a new drachma, Greece might finally edge out of its nose-dive.
It could; indeed, in theory, it should. A clean default would lift the debt burden than has been the main drag on growth; and a competitive devaluation would be a huge boost to Greece’s two largest economic sectors, shipping and tourism. The trouble is, as I argued on CapX a couple of months back, that Syriza will be temperamentally opposed to pursuing the pro-enterprise policies needed to make a success of a new currency.
Not that Brussels wants to take any risk. Iceland, after all, prospered following its devaluation and the collapse of its banking system, despite having by far the most Left-wing government in its history. Given the constraints that will follow debt repudiation – a government in default cannot borrow a penny on the bond markets – even Syriza ministers will have to find ways to live within their means. It will take longer than in Iceland, but Greece will eventually bounce back.
Which might, of course, tempt Spain into voting Podemos, and Portugal and Italy into voting Communist, and France into voting Front National. At which point, the whole European project would unravel. Greece must be punished pour encourager les autres.
I suppose it makes a certain sense, from a Euro-integrationist perspective. But it’s hardly going to do the EU’s reputation any good. Already, people around Europe are starting to sympathise with the underdog. They know that, instead of being allowed to default and devalue in 2010, Greeks were made to carry the cost of propping up the European banking system and the single currency. During the referendum, ordinary Europeans gawped as Brussels officials threatened, bullied and lied, seeking to repress the IMF report that called for debt remission and demanding a civilian coup against an elected leader.
Now they will watch as those same gourmandising, Michelin-starred Eurocrats order the economic asphyxiation of a country that dared to disobey them. And they will draw their own conclusions.