Schäuble needs a history lesson
Poor, benighted Greece. Yes, it lived beyond its means, encouraged by greedy bankers all too willing to see it mortgage its future. And, yes, the Greek way of doing things seems decidedly un-Germanic.
What an unedifying carry-on that scrambled, weekend marathon was, called to decide Greece’s fate and preserve the integrity of the euro. A two days’ notice summons went out to the nine heads of government not in the euro who were told to attend that Sunday. Then they were told to stand down. They didn’t need a grand council of all twenty-eight EU members after all. Talk about an omnishambles and the Grand Old Duke of York.
It was always meant to be that, once enrolled, you were as locked in as all fifty states of the American union are to the dollar. But it turns out that that this is not the case. Former Foreign Secretary William Hague once made the mistake of saying that belonging to the euro was like being in a burning building in which all the exit doors are locked. Really! Wolfgang Schäuble, the hard-line German finance minister, had actually drawn up a plan to show Greece the exit door if it did not comply with EU terms.
There are many truths to this latter day Greek tragedy. Ironic it is that it should happen to Greece of all countries, which wrote the scripts of the very first tragedies concerning the foibles of human nature. Just as it was beginning to make progress under austerity – though there remained much to do, as the latest Brussels proposals made clear – a crazy, economically illiterate cabal of schoolboy lefties gained power. (They once believed that Communism was the answer.) Their silly promises of an end to austerity were seized on by a weary electorate. But how could they work that particular piece of economic sophistry? It was like asking someone to turn base metal into gold.
We are today in a situation in which a mere eleven million Greeks labour under a mountain of debt equal to what our sixty-four million people spend on the NHS in a year and a half. It was, and is, insupportable.
Once again the banks have a case to answer. It is a truism that a lender has as much of a responsibility as the borrower. What is abundantly clear is that the lenders did not exercise due diligence. They knew the Greek character and that once they enjoyed the security of the euro with its low borrowing costs would, likely as not, go on a spending spree and end up living high on the hog, enjoying a standard of living way beyond what their productivity justified.
But while the good times rolled the banks looked the other way and that fatally flawed conception – a currency (monetary) union without a fiscal and banking one was able to bumble along… just. But it was never going to avoid the attention of the speculators on the world’s money markets when the good times ended, as they always do. And boy, did they end! When the banks were exposed as having lent to millions of mainly Americans (but, yes, us too) on mortgages that they knew were likely to go belly-up, they then artfully – and I believe criminally – wrapped up those toxic, sub-prime debts in packages mixed in with sound debts and unloaded them to unsuspecting other banks all around the world. The consequence was that every bank viewed every other bank with suspicion and would not lend to them (an absolutely necessary requirement under the capitalist system) for fear that the other bank had saddled itself with lashings of toxic debt and may actually be insolvent.
When the giant Lehman Brothers bank went down and the Federal Reserve refused to save it, shock waves went round the world. It was a seismic event in that cloistered world of banking which everywhere shut down on lending. It sent the system into a tail spin. Thus we became familiar with a new term: the credit crunch.
Returning to Greece, the bailiffs of the big boys, (the Troika’s IMF, ECB (European Central Bank) and the European Commission) have effectively moved in. Proud, humiliated Greece is being told it must provide collateral for the monies advanced. It must sell off all it can of its public sector along with whatever else can raise hard cash. The next thing we’ll be hearing is that they’ve slapped a ‘For Sale’ notice on the Parthenon. What has been needed throughout, but which has been totally lacking, is a generosity of spirit. If the 520 million people of Europe cannot handle 11 million, admittedly errant, citizens, then something is seriously wrong.
The fact is it is perfectly possible to be a member of the European family (i.e. the EU) – after all, there are nine of us who are not using the euro – without being beholden and tied to that flawed currency. It is equally possible that if one day that currency proves itself by correcting its inbuilt defects and then goes on to become the world’s reserve currency, replacing the dollar, we may ourselves rethink our position and apply to join. But that day is a long way off.
Meantime what of Greece and its mountain of unrepayable debt? 92% of the monies advanced to Greece do not go to helping that country get back on its feet, but to servicing its debts. As a deadline for repayment looms, Greece is handed monies which it must immediately pay back. Thus, while for book-keeping purposes, the situation seems under control it is anything but. It is an altogether hopeless situation. In essence it’s no different from that of a person taking up ever more credit cards to pay off a loan from his bank.
Europe, and in particular Germany, should remember that when the Americans put together that incredibly generous Marshall Aid programme to rescue them from an even more dire situation than present day Greece’s at the end of World War II, there was a total forgiveness of debt. Without that there would have been no recovery of Europe for decades. It remains my hope where little Greece is concerned that our great continent will show a generosity of spirit similar to what the Americans showed with their Marshall Aid programme and declare a forgiveness of debt. Without it Greece has no hope.
A tragic consequence of the present situation which few have thought about is that we are in danger of losing, through neglect and vandalism, much of that peerless heritage we so like to visit and wonder at. The treasures of European antiquity, of which the Greeks are custodians, are already suffering terribly from thefts and shocking neglect. What with the destruction going on in Aleppo, the oldest inhabited city on earth, at Palmyra, Babylon and indeed throughout the Middle East – the very cradle of civilisation – the world will wake up one day and realise that it wasn’t just present day humans who paid the price, but the surviving evidence of what its distant ancestors achieved down the ages.
A train crash in slow motion
The euro crisis rolls on like a train crash in slow motion.
The fact is, you cannot bend economics to your will. The forces which say you cannot do this are almost as immutable as the laws of gravity. Yet that is what the founding fathers of the euro set out to do.
They sought to bind nations with wildly disparate national traits, and equally disparate levels of competitiveness, into one whole. But they did it for political reasons not economic.
It might have worked if all involved had applied the original, sensible rules of entry and submitted their annual budgets to a Brussels power of veto, but they did not.
A monetary union not backed by a fiscal one is actually a no brainer. It cannot work. Even those American founding fathers of nearly 250 years ago understood this.
The success of the American union had a lot to do with the template drawn from a single gene pool with a single historical experience, put in place by the original thirteen colonies who decreed a single language for all.
Now ‘cruel necessity’ – as Cromwell is said to have described the decision to cut off the king’s head – is pushing Europe to cut off the head of the errant Greek state and force it back to the Drachma, Europe’s oldest currency. It is also going to force those who remain within the single currency to give up forever sole control of their countries’ spending policies.
Having done that, then you might at last have a system which actually worked. Within that system would undoubtedly develop a super strong currency with the potential to displace the dollar as the world’s reserve currency.
It all hangs on what the Greeks vote for at the forthcoming election. Despite all the serious pain they are going through a surprising number of them (over 70%) still want to stay in the euro. But, being the hot-headed Greeks that they are, they cannot help but wear their pain on their sleeves.
If this shows itself by a massive protest vote for the party which promises to bucket a lot of austerity promises – as seems likely – then Greece’s days as a euro member are numbered.
The young and inexperienced party leader in question has convinced himself that the Germans, right now, need Greece more than the Greeks need the Germans. The logic of his argument is that the loss of Greece will begin the unravelling of the euro and quite possibly the whole ‘European Project’. He will simply refuse to implement austerity and defy the Germans and north Europeans to do their worst. He’s convinced they will blink first. I fear he and his nation are in for a terrible shock.
It has to be said that no one has benefited more from the euro than the Germans.
If they have huge reserves of savings that is because for a decade they have been marketing their products in a hugely (for them) undervalued currency. Their former chancellor, Helmut Kohl, has admitted – albeit belatedly – that at the time the political elite dared not ask the German people if they would surrender their beloved deutschmark in favour of the new currency because they knew that they would get a big fat nein.
Yet if the euro were to break up, their deutschmark would be back again – only this time with a vengeance; it would become so expensive that few could afford to buy their products. Exports would plummet.
So yes, the Germans are terrified that a Greek exit will set off an unstoppable chain reaction causing the weaker southern economies to drop out, threatening to destroy the whole single currency. But the Germans are equally terrified at seeing their hard earned savings and pensions going down a bottomless ‘Club Med’ plughole and an endless future of propping up lame duck economies.
So now the previously unthinkable is being touted in Berlin and the other chancelleries of Europe: Greece can go if it will not comply with its undertakings. It will serve as a salutary lesson to other possible backsliders, say some. Provided they do not show similar defiance as Greece, then I believe that Fritz will give the European Central Bank the powers it needs to act as the lender of last resort like the American Federal Reserve or the Bank of England.
Both for narrow self-interest and deep psychological reasons Germany does not wish the European Project to fail, much less be blamed for its failure. It wants desperately to be seen as a good European and lay forever the ghosts of its troubled past. So my own belief is that Germany will do all in it power to hold the eurozone together.
IIf the markets go on to attack the other weaker economies once Greece has gone, who knows where it will all end. Even German savings may not be enough to save the euro, so big are the debts of Italy and Spain, the 7th and 9th largest economies in the world.
George Soros, the man who bet against Britain staying in the ERM in 1992 and won a billion pounds in the process, says the euro train has three months before it hits the buffers. While he is not always right, we should worry. He is 60% of the time.
It is my firm belief, however, that the euro, in one form or another, will survive. And as strange – even weird – as it may seem, given present circumstances, there are still many countries waiting in the wings to join such as Poland, the Baltic states, Czech, Slovakia, Slovenia and even perhaps Sweden and Denmark.
Had the original rules of entry been adhered to then none of the present PIIGS would have qualified to join in the first place and this nightmare would never have happened. For that, Germany must take its share of the blame; it does no good for it to get on its high horse over-much.
But a reformed euro, even if it has shed a whole swath of weaker members, may yet be something to behold. It’s been a long time in Europe since anyone has been able to boast of sound money. If it did not entail so great a loss of sovereignty, it might be a door that we ourselves might one day find ourselves greatly tempted to knock on.
A Marshall Plan for PIGS
I recently watched a BBC interview with Angela Merkel, the German Chancellor – a very rare event since she has only once before given an interview to the foreign media.
The interview represented a considerable feather in the cap of the BBC, further confirming its status as the world’s premier broadcaster.
The interviewer, Newsnight’s Gavin Esler, wanted to get inside the head of the person who will largely determine the future of the eurozone and, to some degree, the rest of the world.
The visual aspect of TV makes it very difficult for an interviewee to ‘fake it’; to pass himself off as someone else. His body language and emotions are often plain to see; and when his face occupies most of a 42″ screen in your living room, you feel you can almost look into his soul. TV greatly assists in our quest to sort out the wheat from the chav.
Merkel came over as a pleasant, but no-nonsense, woman – interested more in getting the job done than in sound bites. Astute as she was with thoughtful responses, she seemed genuine.
And there was more than a little guile there too (but you don’t get to lead the most powerful economy in Europe without a level of that).
It was not difficult to understand why she had taken a shine to our own prime minister – the polished, well-mannered product of England’s leading public school. She may even have fancied the younger man a little, or perhaps felt a tad motherly, seeing him as the archetypal English gentleman as opposed to the coarse, bling-loving French president who wants to smother her at every opportunity with Gallic kisses. The contrast is stark.
Cameron is a most courtly emissary from a fellow Teutonic power which, from early childhood, she had come to respect. Yet despite its bombing of large areas of her beloved homeland almost back to the Stone Age only a generation or two before, it is apparent that – in economic terms at least – Merkel regards Britain as a natural ally and one she is most unwilling either to offend or marginalise.
The BBC was right in picking Gavin Esler as the interviewer, since Paxo might have been too adversarial by adopting his characteristic ‘master inquisitor’ approach.
But what I really gleaned from the interview is an appreciation of the lengths to which Germany will go to save the single currency.
Up to now, Angela Merkel has, understandably, played hardball. The German taxpayer is not going to throw his money at profligate nations which show an unsatisfactory willingness to change their ways.
The Germans want a new economic order in Europe so that nations act responsibly in the future; and to this end they want robust systems in place in the form of a fiscal union.
Germany is not interested in imposing a German jackboot, but wants the whole exercise to be seen as a pan-European affair – even though a fiscal union would result in all 17 eurozone nations’ budgets being overseen by EU officials: a fact masked by a Byzantium-level of cunningness or ingenuity (call it what you will).
I came away from that interview convinced that the German political elite do not want a single member – not even Greece – to drop out of the eurozone. And when push comes to shove, they will do everything in their power to see that this does not happen. They see the loss of a single country as the trigger that will begin the unravelling of the entire single currency and, more than that, of the whole ‘European Project’ to which it is so utterly and irredeemably committed.
So now, it would seem, it is down to the individual eurozone member states to do what is necessary. Only time will tell whether the eurozone’s peripheral countries’ impoverished citizens will – or even can – stay the course.
Pain levels in Greece – and now, more alarmingly, Spain – are at breaking point. A pistol shot to the head outside the Greek Parliament of a 77-year-old retired pharmacist has a terrible resonance with that pistol shot long ago at Sarajevo which set in motion the chain of events which led to the First World War.
Germany has to understand that PIGS’ (Portugal, Italy, Greece and Spain) citizens can take little more pain. While it was necessary to start the austerity drive and change PIGS’ spending habits, it is clear that austerity alone is fast becoming counter-productive.
If Germany wishes them to hold on, she must give them hope – and this can only mean a plan not just for cuts, but for growth. She must put together and spearhead a new Marshall Plan of aid – such as saved Europe in the aftermath of the Second World War.
Germany does not wish to be cast as the villain all over again; the one who did wrong by Europe for a third time, only now by economic, rather than military, might.
Now that we have all come to understand that we must stop living beyond our means, and that the social model we have developed is unsustainable, we are in a position to go forward.
Only by means of growth and a smaller state sector have we a chance of paying down our debt.
Fearful and envious as we may be of the developing countries – and that includes the oil producers – they are as one in wanting us to succeed; for if we go down the pan, we are as likely as not to drag them down with us – and they know this.
They might even feel that it is in their interest to involve themselves in such a rescue plan. But they will not do so if they see north Europe, and in particular the Germans, sitting on a pot of gold but refusing to use it to kick start their own salvation.
God, as they say, helps those who help themselves.