25 June 2015

Will a Greek deal on the Euro last more than five minutes?


As we await the denouement of the Greek crisis, hopes rise and fade by the hour. Someone reports that there are signs of hope. No, there aren’t, reports someone else. Meanwhile, questions abound. Where is the Greek finance minister chap with the shaven head and the motorbike? Answer, it seems he was in London last night. Does the Greek PM own a tie? Probably not, for ties are outdated symbols of capitalism and patriarchy, and an open neck shirt is preferable in Greece, especially when it gets so damned hot.

My friend Simon Nixon, the WSJ columnist and a plugged-in veteran of the Eurozone crisis, says in his latest dispatch that a poor deal is better than no deal. But even if a patched together agreement does emerge from the interminable summitry, will it be robust enough to last more than five minutes?

If sufficient concessions are made to satisfy other members of the Eurozone, then the Greek government will have trouble getting it past the Greek parliament. On the other hand, what would satisfy the Greek parliament would not satisfy Germany. It is almost as though there is a basic design flaw in the Euro project…

Then there are the payments Greece is due to make, once it has got over its current short-term financial difficulties.

‎Once it has sorted out the €1.5bn it owes the IMF at the end of the month, it must find €452m for the IMF and €3.5bn for the ECB next month. In August, there are supposed to be further payments of €176m to the IMF and €3.2bn to the ECB. In addition to all that, in the next two and a half months up to €8.2bn in outstanding Treasury bills, largely held by Greek banks, have to be settled or restructured.

What Greece needs, then, to get it out of this hole, is strong growth in a hurry, producing revenue, although it is extremely diffi‎cult to see where that might come from without a change of government and a change of direction. Greece was recovering, until Syriza turned up.‎ The Marxist government’s answer to the growth dilemma involves a tax hike hitting the tourist trade (genius!) and more taxes on the wealthy. Both measures are hardly likely to cause money and investment to flow back into Greece.

Iain Martin is Editor of CapX.