– It’s not only Greeks who’ve lost their marbles (Telegraph, June 26, 2011):
The essence of ancient Greek tragedy is that the audience knows it will end in disaster, but feels compelled to watch the horror unfold. And so it is with the modern version, a sovereign debt crisis of Sophoclean dimensions. Themes of the great dramatist’s finer works are all there: how arrogance, pride and deception result in unbearable pain; the inevitability of retribution and (not yet witnessed in Athens or Brussels) the arrival of wisdom through suffering.
Tomorrow, Greek MPs are scheduled to vote on a fresh austerity package. If it’s passed, the country will receive the next 12 billion euros of a 110 billion euro bail-out. Sadly, this is little more than a financial hors d’oeuvre. Still required is an additional 100 billion euro deal if Greece is to remain solvent until 2013. In effect, the country is borrowing enormous sums to service existing debts, which it cannot afford to repay. As Sophocles reminds us, when divine and human purposes conflict, the gods will always prevail. In this case, Athena, the deity of endeavour and reason, is deeply offended by Olympian self-indulgence. The upshot will not be a miraculous economic recovery, but a spectacular flame-out. As far as Greece is concerned, there is no deus ex machina. The tragic denouement will involve its default or withdrawal from the single currency, perhaps both.
Greece is bust; it already owes 160 per cent of its GDP. Its economy is staggeringly inefficient. Many in the public sector enjoy retirement at 50 and pensions close to full final salary. The private sector is blighted by corruption. The tax-collecting system operates on the basis of a tips box, with only 5,000 Greeks admitting to an income of more than 100,000 euros. When in January 2001 the country flagged its intention to ditch the drachma for the euro, the then prime minister, Costas Simitis, promised: “Our inclusion [in the eurozone] ensures for us greater stability and opens up new horizons”. That was the comedy.
Now for the tragedy. Greece’s entry was based on a false prospectus, as the European Commission admitted in 2004: “It is clear Greece would not have joined the euro with the figures we have now.” Greece hid massive budget deficits between 1997 and 2003 by understating military spending, exaggerating VAT receipts and overestimating social security surpluses. Thereafter, while the Brussels elite was suspending disbelief, the Greeks were borrowing cheaply, paying themselves lavishly and spending uncontrollably. The state became a vehicle for pillage and patronage. Dionysos, god of parties and pleasure, had his day.
Those who lecture us on the European Union’s “political will” to fix a looming Hellenic bankruptcy have, like the Greeks, lost their marbles. As Bank of England governor Sir Mervyn King warned: “Simply the belief that we just lend a bit more will never be [an] answer [to a problem] which is one of solvency.” He added that Greece has only two options: one, to receive gifts or transfers from friendly countries; the other, to improve productivity, enabling it to turn a current account deficit into a surplus. It’s inconceivable that German voters (the EU’s main paymasters) will permit the former and there’s no evidence that Greeks can achieve the latter.
The political party of Prime Minister George Papandreou is in hock to the unions, whose leaders, even as the country teeters on the brink of ruin, launch rolling 48-hour strikes. Organising a Pasok in a brewery appears beyond them.
Were Greece not locked in a synthetic currency that is run for the benefit of its most powerful members, Germany and France, it would have the option of devaluation to restore competitiveness. With that route blocked, however, and with no possibility of the Greek electorate accepting necessary reforms to welfare, work practices and taxation, the most sensible outcome in the short run is an orderly debt restructuring. This is a form of default, except that it is engineered and agreed to by creditors. In the long run, Greece may have to quit the euro.
Meanwhile, because no commercial body will lend to Greece at rates it can contemplate, the country’s only remaining source of funds are international institutions, eg, the EU and the International Monetary Fund, which tap their members’ taxpayers, whether they like it or not. Thus private commitments are converted into public obligations. It’s an insidious process, in which the United Kingdom is caught up largely through our role at the IMF. The cost to this country would have been immeasurably greater, however, had we been a fully paid-up participant in the euro.
Which brings me to the economic illiterati who campaigned so hard for the abolition of sterling and Britain’s entry into a currency zone with a homogenous monetary policy, a fragmented fiscal policy and a habit of admitting unsuitable applicants. Where are they now? My research leads to a paper written in 2002 under the auspices of the London School of Economics, headed: “Why Britain should join the euro.”
In it, the authors insist that fluctuating currencies are a barrier to “efficient levels of production”. Membership of the euro, it said, would enable Britain “to pay for better hospitals, schools, houses and railways.” Outside the euro, the British economy would be “increasingly on the sidelines”. With neither irony nor prescience, the report concludes that by failing to join the euro, Britain would miss out on “the great restructuring of the European economy and its trading partners that is already under way.”
So, who penned this clap-trap? Amongst others, step forward Chris Huhne, the Energy Secretary, a man well acquainted with troublesome Greeks. The gods, it seems, have a sense of humour.