hms iron duke

hms iron duke

Monday, 26 January 2015

Beware Greeks Seeking Gifts!

Alphen, Netherlands. 26 January. Mahatma Gandhi once said, “Freedom is not worth having if it does not include the freedom to make mistakes”.  Europeans have made a lot of mistakes these twenty-years past.  The victory of Alexis Tsipras and Syriza (Coalition of the Radical left) in yesterday’s Greek elections will reverberate far beyond Ekklesia where European democracy was born. Indeed, Syriza poses a challenge not just to Greece’s place in ‘Europe’ but to the entire European order.  As such Europe is a facing a series of power struggles no less important than the Peloponnesian Wars that decided the balance of power across the Adriatic in the fifth century BC.

Power struggle one will concern who pays. It will essentially be a struggle between the Northern and Western European taxpayers and savers of the eight or member-states that pay for the EU and much of Southern Europe.  With the Greek economy having shrunk by 20% since 2009 and with 25% of the population unemployed the frustration of the Greek people with austerity is understandable.  These past six years have indeed robbed Greeks of both “hope” and “dignity”, as Tsipras has said.  Tsipras also says that he will seek a 50% cut in Greek debt, re-employ large numbers of civil servants (in what was once an appallingly bloated public sector), raise salaries and pensions and offer free electricity.  In other ‘worlds’, Tsipras intends to pile on debt and return to the bad-old days when as a Dutch taxpayer I had to fund Greeks via spiralling, growth-killing Dutch debt.

Power struggle two will be about who is in charge. This will concern primarily (but not exclusively) the relationship between Chancellor Merkel, the Germans and the Greeks.  Both the Greek Left and Right shamelessly painted their greatest benefactor – the German people - as Nazis for insisting on cuts and reforms in return for large injections of German money.  This was outrageous and unfair. Yes, Germany had to bear some responsibility for Greek debt.  Indeed, if the Euro helped to lower the cost of borrowing for Greeks it also offset the cost of German production. Taken together low borrowing costs and low productions costs fuelled export-led German growth for almost a decade. 

However, implicit in the German view of ‘austerity’ is simply the belief that a state must live within its means and generate economic growth via an efficient and competitive economy.  That is why last week at German behest 80% of the risk of Mario Draghi’s massive €1.1 trillion of quantitative easing bonds will be borne by national central banks.  This is not without political irony. The Euro-evangelising Germans are indicating they will not accept debt mutualisation and thus a move towards a European super-welfare-state.  The Greeks on the other had are betting that there will be such a move, that their debt will become someone else’s problem and their vision for the EU is precisely a European super-welfare-state in which they are forever drawing welfare.

Power struggle three will concern the importance of ‘rules’ in the EU.  It will concern primarily the relationship between EU citizens, member-states, and distant Brussels and Frankfurt-based EU institutions.  In the absence of political union, monetary union was established on a set of principle, rules and practices enshrined in the Stability and Growth Pact. Sadly, the French and the Germans were the first to break the key rule that fixed the debt-to-GDP ratios.  By so doing they established a precedent for rule-breaking whenever politically-convenient that has ripped credibility from the heart of the single currency rendering the Euro what markets term a ‘soft’ currency. 

With the Syriza victory Europe is about to witness a game of chicken for the future of Europe and it will start next month.  Greece must repay €6.7bn to the IMF and ECB at the end of February if the next tranche of my money (Emergency Bail-out) is to be triggered.  If Syriza defaults on the debt Greek banks could soon collapse and the country go bankrupt.  A stand-off is clearly in the offing as German lawmakers are this morning threatening to block the money. 

The key issue will be the nature and extent of the inevitable compromise.  Will the so-called (and much hated) Troika really ensure Greece continues with reforms within the bounds of the so-called ‘Framework’?  Or, will the Framework be abandoned thus in effect opening the door to full debt mutualisation?  Of course, whatever happens Brussels propaganda will present the latter as the former but the truth will out.

Like many Europeans I am willing to make sacrifices for Greece because I have no wish to see fellow Europeans suffer. However, if I make such sacrifices I want to see Athens making the necessary reforms so that Greece and other Southern European can face the same reality I must in the competitive world of the twenty-first century. And yet I see no such reforms and instead I am continually lectured about the need for ‘European solidarity’ as the EU becomes ever more a mutual impoverishment pact and drags me and my family down with it.  

Perhaps the safest thing for Greece to do now is to exit the Euro, return to a devalued Drachma (with all the necessary social support from the rest of us), recover and reform.  That would, of course, pose another challenge to Brussels.  What is Greece were to do far better outside the Eurozone than within it?

In any case, to caricature Odysseus - beware Greeks seeking gifts!

Julian Lindley-French

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