Today is Friday and we all love Fridays. There just happen to be some Fridays which one loves more than others and this Friday has to be just one of those. It’s been a miserable week dominated by an event which nobody seems to have any control of and to which there is as good as no positive outcome. If there is, however, something nice to be said about it, that has to be that it has kept all of us from confronting other problems which might be lurking in the background.
As I have noted repeatedly, Greece is nothing but a squashed fly on the windscreen of the global economy. The best guess is that it now, following its recent annual contraction, represents just a tad above 0.3% of global output. It could have been permitted to fail five years ago with debts of some €88 billion. Now it risks defaulting on something closer to €340 billion. Why, for heaven’s sake, have we moved from one to the other?
This, the careful observer has to conclude, has nothing at all to do with Greece. This has to do with the powers that be in the northern part of the Union having realised that a quarter of a trillion euros is a price worth paying in order to keep the myth of currency union alive.
Italy lives beyond its means, Spain lives beyond its means, Portugal lives beyond its means and, above all, France lives beyond its means. In their own way, the billions poured into keeping Greece afloat have in many served to do nothing more than to assiduously keep the flies off that bunch of brides.
For 23 years, since the signing of the Maastricht Treaty in February 1992, it has been argued by the world’s leading economists that currency union without fiscal union is not going to fly. The enthusiasts’ counter has always been that such minor failings can easily be overcome by the political will and that as long as that persists, the unitary currency with all its benefits will succeed.
Now, I’m not sure about the total debt figure for Greece. I’ve seen more different calculations and conclusions than there are recipes for moussaka but if the 340 billion is right, then that represents, give or take, €1,000 lent by every single citizen of the eurozone – widows, orphans and babes in arms included – to a country with no more than 2½% of the area’s population.
There is a wonderful word in German which is “Verhaeltniswahnsinn” which roughly translates as “proportional madness” which expresses in this case that the amount of time and the amount of money which has been dedicated to the financial travails of the Hellenes bears no relation to the benefits of the outcome. That is, of course, seen on a practical basis.
Nothing more…
It is clear that if Greece is expelled from the euro, the remaining edifice is little more than a glorified fixed exchange rate area. That might not only be true; it is true. In fact, without the necessary preconditions of which fiscal union is the glaringly obvious one, the eurozone, as it presents itself today, is nothing other than just that…..but don’t tell the children.
We learnt at school that any experiment must be conducted under the worst possible conditions for it to achieve validity. The current migrant crisis is testing the validity of the Schengen Agreement and the closing of the border between Venitmiglia and Menton by the French authorities puts that into question.
We British stand accused of wanting to pick and choose the bits of EU membership which suit us and to opt to leave the rest. I would contend that to be an incorrect assessment. The notoriously pragmatic British are happy to adopt the elements of the Union treaties which make sense but prefer to step away from some the idealistic but impractical flights of fancy.
Both Maastricht and Schengen are struggling under pressure but in typical Brussels fashion, the only known solution is to bury growing problems under a large pile of other people’s money and if the problem grows any further, to continue to increase the size of the pile covering it. Those other people are taxpayers who cannot fight back against a fairly undemocratic political edifice which beyond the control of any single, elected executive and, wherever possible, those taxpayers have a German passport.
Thus it would be possible to conclude that the negotiations which are currently taking place with the Greeks have nothing at all to do with Greece. The rest of the eurozone can, from an economic perspective, happily live without it. What is being discussed is the price which needs to be paid in order to keep the myth of unshakable Union alive.
There have been reams written on the subject of which shoe would be the next to drop, should Greece fail. The fear has to be that it would not be just one shoe but the entire shoe cupboard at once at which point millions would be wiped out and they’d be crying for simple, friendly and generous two-thousand-and-teens’ austerity to be brought back.
The price of failure this week-end is simply too high to contemplate and therefore, I still believe, even Mutti Merkel will be tying the laces on her finest can-kicking boots.
