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Euro meltdown
  • Syriza offer a classic example of the hypocrisy of the modern Left – they want the Eurozone’s demands for austerity to stop, for the Greek state to return to higher spending and borrowing, but they simultaneously claim that this can be done while staying within the Euro. Conveniently ignoring that Greece entered the Euro by using sharp book-keeping to appear to be compliant with the deficit rules and that it stayed there due to the EU’s willingness to turn a blind eye to those rules being broken, they now make argue that the expectation of fiscal rigour is just a German whim rather than fundamental to the functioning of a single currency.
  • Greece should, of course, have the freedom to run its own economy as the Greek people choose – even if that means driving it into disaster by refusing to acknowledge that money doesn’t grow on trees. One of the Euro’s fundamental flaws was always the fact that member countries would need to sacrifice sovereignty over a major part of their own affairs. It’s unfortunate that Syriza have decided the problem is evil capitalism rather than anti-democratic Euro membership.
  • Given that they want to return to fiscal irresponsibility and to stay in the Euro, how likely are they to achieve both goals? Not very, it seems – but which they decide is more important will be the crucial call.
  • It’s always difficult to really get into the head of a new, or newly successful, party (see UKIP for reference) but looking at Syriza’s leadership, new parliamentary cohort and grassroots attitude from outside it is very hard to see them happily settling for what would effectively be more of the same. They have just led a national crusade against austerity – if forced to choose between fulfilling that or staying in the Euro, it’s hard to see them putting the Single Currency first. In practice, anti-austerity was their real policy and staying in their Euro was an add-on intended to reassure voters.
  • The early meetings with the EU institutions and with Berlin’s representatives have not, it is fair to say, gone well. When Wolfgang Schauble said they would “agree to disagree”, his Greek counterpart countered that they hadn’t even got that far.
  • Of course, this is a gambling strategy. Syriza have three possible bets – first, that the rest of the Eurozone loves having Greece on board so much that they don’t want to see them go; second, that Brussels would find it too humiliating to allow their grand project of European unity to take a step back (and that the Spanish might get the same idea if the Greeks are allowed to go); third, that the West wouldn’t want to take the risk of driving Greece into the cold embrace of Vladimir Putin. The first is unlikely – German voters in particular are hacked off with subsidising what they see as South European irresponsibility. The second is possible, but the decision to allow Athens to keep on breaking the rules even more egregiously won’t be made by Eurocrats, it’ll be made mostly in Berlin. The third is far more disturbing – Putin would love to have a friendly vote at the EU’s top table while the Russo-Ukrainian war continues, and he is keen to find a new Mediterranean naval base (his current one is in Syria, not an ideal spot at the moment).
  • We must also remember that it isn’t just down to political decision-makers. Greece’s future is also down to the markets, whether Syriza like it or not. Britain crashed out of the ERM unexpectedly – there had been endless discussion of policy solutions to the problem, and various such attempts were underway, but it suddenly all came to nought. As someone once said, “you can’t buck the market”.
  • So the Greek crisis is likely to continue and to deepen, as the political struggle intensifies and the bond yields grow ever higher. It seems to me more likely to end in Grexit than not – Merkel has more to gain by telling the Greeks it’s their mess to sort out than by pouring more cash into the hands of a government which has declared its willingness to splurge. Either the Euro will lose its most troubled and troublesome member, or it will embark on severe moral hazard, giving the green light to Podemos in Spain and others to break the rules as much as they like.
  • And what of the impact in the UK? Well, these troubles aren’t likely to go away before the General Election. Economically, Eurozone crisis is bad news for exports but good news for inward investment, as people seek a non-Eurozone safe haven in which to place their money. Politically, trouble over the water acts as a reminder that stability and responsibility are good fiscal policies – an obvious opportunity for the Tories Long-Term Economic Plan. Continued trouble for the EU as a political project may lend some aid to UKIP, but will also likely increase the demand for an in/out EU referendum – that can only be secured by voting Conservative.
  • Finally, a reminder. It’s fascinating to watch the Eurozone’s troubles from the outside – but thank goodness we have that privilege. Jimmy Goldsmith, Gordon Brown, William Hague and Ed Balls might make an odd dinner party line-up, but they – along with a host of dedicated campaigners – played a major part in keeping us out of this disaster. We should be forever thankful (despite their possible other sins) that they got this one right.

 

50 comments for: The odds on Grexit shorten

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