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.
The long awaited rescue of Europe, along with its badly put together single currency, gets under way now that the German chancellor no longer has the distraction of an election to worry about.
Angela Merkel, the pastor’s daughter from the former Communist east, will get down to a lot of serious business. Her mission, no less, is to save the continent from imploding. In doing this she will seek help from her new best friend, David Cameron. Many of us here at home have gone off him, particularly the women, but he makes a good impression abroad. Even neo socialist Barack Obama gets on well with the ‘posh boy’ from Chipping Norton. He is mannerly, brimming with self-confidence and knows how to talk the talk. What else would one expect from an Old Etonian, that breed of Brits who once believed that they were born to rule. Incredibly, it seems that even in 21st century Britain they still have grounds to believe this.
Angela Merkel aspires to a business-minded Europe: caring but frugal; hard working, but at ease with itself. The last thing she wants is a Europe in tatters. Whether or not it was wise to create the euro in the form they did, we have to accept it is a fact of life. It certainly has benefitted German exporters, whose massive sales to the rest of Europe is part of the reason they are in such debt. If Germany were to go back to the deutschmark its exports would be so incredibly expensive that their export dependent economy would be in danger of crashing. So save the euro they must. But they must also save it for another reason: if it collapses, or even fragments, the whole European Project will as likely as not come off the rails and Germany will take the blame. For the third time in a century, people will say Germany has left Europe in ruins.
The simple truth is that the political and financial establishment have too much at stake to allow their dream project to collapse. The consequences would be seismic and coming at this time, when recovery seems underway, it would be unthinkable. Only Germany has the financial clout to save the Euro.
But Fritz does not want to open up his coffers – especially to what he perceives as lazy and corrupt southerners – but neither does he want to become Europe’s baddy all over again. He will drive a hard bargain which will involve some pretty nasty medicine when he takes responsibility for all that toxic debt and he will seek a powerful, respectable ally to share the howls of protest with. France is no longer willing to be that ally. She seems not to understand the scale of the problem. Perhaps that’s because she is herself part of the problem. That leaves only one ally available to Germany and it is not even in the euro. That ally is us.
Germany views Britain as a business-minded country, like herself, and it makes sense, in her view, to get Britain onside in her chancellor’s drive for reform because Cameron wants reform too. But his reform is not just in monetary matters. As it happens, Germany, as well as others, doesn’t much like a lot of what is coming out of Brussels so he could find himself pushing at an open door.
I am convinced Germany will do all that it can, within reason, to give Cameron what he needs from Europe rather than lose a necessary and valued ally. Merkel is said to be ready to discuss anything, so long as Cameron does not ask her to chose between Britain and Europe. She knows that if he cannot repatriate powers then Britain is a goner from the EU. That would be a body blow to the whole European Project and it would set a most unwelcome precedent. It would send shock waves throughout Europe and indeed the world.
Even before her re-election, when she had to be careful, she began her courtship of David Cameron. That weekend soiree to her country home in which Samantha and the kids were invited, was in my view, extraordinary. It spoke volumes. She has never asked any other political leader to visit her at home, never mind bringing the whole family. So even if the women on Dave’s home patch have abandoned him in droves, Angela most certainly has not. She thinks he’s lovely – ‘My naughty nephew’, she calls him, and can’t wait to team up with him in sorting out Europe. In all the photo shoots of recent times she makes a point of standing next to him, and the body language is very telling.
All in all, it causes me to think that we are in the early stages of seeing a new, powerful axis being formed… a resurgent Britain alongside its fellow Teutonic power Germany. That axis will be an outward-looking one keen to harness the enormous potential of half a billion Europeans, but moving to direct their energies to the world beyond Europe. Britain, for its part, is already travelling very successfully down that road and with its vast connections worldwide, its goodwill from its former empire and its universal language, it is peculiarly well placed to profit from it all.
Uncle Sam worries about the threat posed by the emergent Eastern economies – we all do – but he does not worry about Europe. Rather he wants to team up with it in a North Atlantic trade partnership. Such a partnership is a very real prospect; it will hugely benefit all of us and give the whole world a tremendous fillip.
I do not subscribe to the view that this century will necessarily be the Asian century. Yes, it will do well, but all the countries concerned have tremendous structural and political problems which the West overcame long ago. Endemic corruption and a lack of trustworthy institutions will also act as a break. Human Rights issues will plague them because justice, as we know it, does not exist. They have got a lot of work to do and are not in a position to give their undivided attention to coining a buck, as the West is. For a start, they are going to have to take better care of their people and that means creating something of a welfare state – and we know how ruinously expensive that will be.
As for Cameron, he has a great opportunity, but if he does not put forward some female friendly policies and quickly, he won’t be there after the election to take advantage.
It used to be said that when America sneezed, Europe caught a cold. Now it’s the other way round, except that Europe has done a great deal more than sneezed; it’s almost taken to its bed. The reason for this is that Europe today is, despite appearances – the world’s economic powerhouse. It has on the way to twice America’s population and accounts for well over 40% of the world’s trade. But it has mismanaged its affairs to the point where the markets have had enough.
We must not blame the markets; they are only a reflection of how the guardians of our pension funds and insurance companies view future prospects. It is their job to identify risk and so protect people’s savings. They do not worry about the Scandinavians, Swiss, Dutch, Germans, or even us (now that we are in the process of balancing our budget and bringing our deficit under control). What they look for are not fine words and good intent – welcome as they are – but action.
They have seen it from us, but they have not been getting it in any meaningful way from Europe. From bestriding the world like a colossus in the lifetime of people still alive (not many, admittedly), Europe has seen its position twice destroyed by the two German wars.
The European Project was designed to ensure that this never happened again. For 50 years, Europe has painstakingly climbed back on its feet. Its people realised that old style nationalism was not the way forward, and today it is a beacon of cooperation and prosperity admired around the world. But all this is now threatened. Ruin, recrimination and bad – if not spilt – blood faces the continent unless it acts fast and decisively
It is to Europe’s great good fortune that it has one economy big enough and strong enough to silence the markets. But the leaders of that economy must step up to the plate. While we all understand why Germany is so paranoiac about printing money, no extra notes are actually printed – it’s just an electronic exercise in today’s world. And that is the point.
Today’s world is very different from the financial circumstances which brought Hitler to power. First, we now know that beggar thy neighbour, protectionist policies are counterproductive. Second, we are a much more joined up, globalised world, with powerful computers assisting our fragile brain capacities. Third, there are the great institutions such as the World Bank, the IMF, the World Trade Organisation, G20, and many, many more which were not in place when Germany’s Weimar Republic wrestled with its horrendous problems. (Not the least of these were the foolish and ruinous Reparations imposed by the victorious Allies in the Versailles Treaty). So Germany can take a more relaxed view today.
While it is important to learn the lessons of history, it is equally important not to be spooked by them. Germany has an historic opportunity to save Europe which its previous militarism helped to destroy. Germany must realise that if its fears and parsimoniousness allow the Euro to collapse, it will be among the greatest losers; its export-dependent economy would reel under the weight of a super valued Deutschmark. Nobody would be able to afford its goods. And that’s another thing! Nobody has benefited more from the reasonably priced Euro than have the Germans.
Poor, benighted Greece, (along, I might add, with the rest of us) has indulged itself on German products and that’s part of the reason it owes so much. There’s an irony in there somewhere, surely. Another irony is that this crisis has ended a British foreign policy which has been central to it for 500 years – even propelling it into any number of pre-emptive wars – never to allow a continental power bloc to develop which would overshadow us.
When our Prime Minister and Chancellor of the Exchequer urge Germany forward into a fiscal union, of which we will not be part, they are doing just that: putting the final building blocks in place which will lead to a united Europe.
It is a measure of the extraordinary trust which has built up that they feel safe to do so. So Fritz now has his chance to be the hero of the hour. Let him look at the big picture and rise to the challenge. Europe will be forever in his debt (literally). The European Central Bank must be the vehicle of his largess. It must be beefed up to the point where it can act like the Federal Reserve or the Bank of England – the lender of last resort.
The consequence of Germany opening up the coffers on all its hard earned dosh will not be without benefit in other ways. Systems will be put in place to ensure that such a drama never happens again; the feckless will be compelled into good housekeeping; corruption will be rooted out; Spanish practices in the workplace will be curtailed and Europe will have the fiscal union which, but for the crisis, it would never have had.
South Europe, despite all these measures, will always need a little forbearance, much like the poorer regions of Britain. We northerners will have to accept that with all that heat you will never get the Club Med countries to beaver away quite like us. But if they are unable to implement the austerity requirements – and they should not be too draconian (remember Versailles) – then they should be let go.
One thing, though, is certain. Either we all do our best to all hang together or we will surely all hang separately.
It is alarming that the markets have given a thumbs down to the Obama/Congress deal. And now we hear that they are seriously doubtful of Italy’s ability to grow its way out of the enormous debt it holds.
What with Spain teetering on the brink, and Greece, Portugal and Ireland considered lost causes, we have what amounts to ‘the perfect storm’. Yet we British have retained the market’s confidence; our willingness to bite the bullet allows us to borrow at the same rate as the Germans. But sadly that won’t save us. We absolutely have to sell our goods and services to the New World as well as the old.
43% alone of our output goes to the European Union, and another huge chunk to North America. The US Republicans – led by the Tea Party – refuse to aid a deficit cutting programme by including tax increases, even though the Federal Government’s tax take is barely half the European average. What right-minded system in today’s world allows Western drivers to fill up at not much more than half of the EU average?
Alas, Americans (and to be fair we) have been living high on the hog for too long. We in the West – especially the Americans with their consumption-driven economy – have been sating ourselves on China’s cheap goods, fueling its mind-blowing year-on-year 10% growth at the expence of increasing their own competetiveness. Industries have gone down like ninepins and jobs exported; they have allowed China to get away with a grossly undervalued currency and not to conform to World Trade Organisation rules. Perhaps most alarming of all, China stands accused of commercial and military espionage on a industrial scale by hacking into the West’s computer systems. This amounts to war by other means. So either the US treats balancing its budget almost as though it were a wartime priority, or it can say goodbye to being the world’s leading economy. Hello, China. Hello, India.
We may have been sold the idea that somethings are too big to fail, but believe me: a whole nation can fail – even the US if it hasn’t the stomach to put its house in order. The wars in Afghanistan and Iraq have done for the United States what the Kaiser and Hitler wars did for us… nigh bankrupted it. The difference is that in our case it was a noble struggle that simply had to be faced; a militaristic Germany bent on world conquest was a cause worth sacrificing even the British Empire for.
As far as the Euro is concerned, no matter how many sticking plasters they try to put over the crisis, nothing can hide the fact that the patient neeeds surgery. Greece and the others – the so called PIIGS – can’t service the debts they already have and provide for growth. And how does it help to foist more loans on them and push their service charges even higher? It’s the economics of the madhouse. They must all be cut loose; free to set their interest rates at the appropriate level; free to make a mess of things if they can’t get their act together without dragging everyone else down with them and also free to rejoin if they get their house in order and meet the strict criteria of membership, which they were meant to meet in the first place but never did.
The only alternative is for the sound economies of the north to take fiscal control of the hopeless cases in the south. In other words, a Fiscal Union to add to the unworkable existing Monetary Union. In the long run the PIIGS would all be better off. But would they stand for it? Proud, broken Greece would find it exceedingly hard to take the teutonic medicine that Frankfurt would insist they swallow.
As for poor old Britain, we are left dangling in the wind, waiting on events over which we have no control, but which are certain to turn all our lives upside down. I would hazard a guess, however, that if the Euro is reformed so that only successful economies can belong, then perhaps a very good case could then be made for us to join
There are huge advantages to be had in belonging to a truly powerful currancy bloc that might well take over as the world’s Reserve Currency. I fear the dollar’s day may be done, but I wouldn’t underestimate Uncle Sam’s recuperative powers and his legendary can-do approach when fired up. But please, please don’t let the Reserve Currency be the Yuan if Uncle Sam can’t make it.