The economic crisis in Greece has many ironies, one of which is that an appalling fiscal mess, left by a very right wing government, is the responsibility of a left wing government to clear up. It is the same Augean task (to stick with Greek cultural heritage) as will face whoever takes over from this very right wing government in the UK.
Being nothing but a lowly party member, I cannot pretend that the Mervyn King scenario had not occurred to me too. I had considered that a Cameron administration, with a tiny majority, propped up by some Northern Irish bigots, would inflict such pain on the majority of our society that, before falling after a few years, they would put the Tories out for a generation at least.
In so doing, they would greatly enhance the cause of Scottish and Welsh independence, and with the Lib Dems the second most popular party and the challenger in the large majority of Tory seats, the Tory demise would sweep in a radical change in more promising circumstances. All that had occurred to me.
But it was of course the Thatcher scenario. She was the least popular Prime Minister ever. But then she engineered into a massively popular war the crass Argentinian invasion of the Falklands , and never looked back. The Tories could pull such a trick again. Accompanying another war, they might crank up still further the appalling reduction of our civil liberties.
On top of which we need to pin down electoral reform now, while there is the best ever chance. PR and a 100% elected House of Lords will transform the political landscape of the UK for ever. Let’s look for an outcome that secures that – it is more important than the pleasant prospect of watching Cameron fall on his arse. So I am out again today campaigning for the Lib Dems. This is the first chance to change the two party system for a generation.
Back to Greece. The European ideal – which at its internationalist core I regard as a good thing – is suffering from overreach. The Eurocracy have always been expansionist, and taken the view that to secure expansion is more important than the detail. Thus Greece and Portugal in particular were admitted to the Euro when everyone knew that it was a fudge, and that their dim relationship with the convergence criteria was based on fake statistics.
The same is true with the accession criteria, which in areas like corruption, transparency and the rule of law Bulgaria and Romania were deemed to meet, when plainly they did not. On human rights, dreadful treatment of their Roma was ignored. All that too will come back to haunt the Eu.
The problem with faking the convergence criteria, and the fundamental flaw in the Euro, is that there is no real mechanism to enforce a broadly similar fiscal policy across the single currency. The system of peer review relies on the (in this case Greek) government’s own falsified statistics, and has few teeth even if it had good information. The result in effect is that individual countries can practice free quantitive easing – just print themselves money. This devalues the money everyone else has in their pocket, as the Eurozone is now noticing rather sharply.
We are already lending Greece more money through the IMF than the amount we would need to give if we were part of the Eurozone rescue package. I do not think these loans will halt the markets, who have identified the fundamental weakness in the Euro’s structure and will go for it mercilessly.
There is much speculation that Europe should boot Greece out of the Euro and we should see a return of the drachma. I think broadly that should happen. But there is an alternative to the return of the drachma – which Greece would simply create far too much of, and would soon have toilet paper status. Greece could be kicked out of the Euro, but still use the Euro as its currency, merely losing the ability to create it, with the government having to raise the money by bonds and import cash physically from another European state. That is on a more institutionalised and thorough scale the way the dollar works in countries with junk economies. Once Greece has really reformed it can rejoin the Euro properly.
Humiliating, but it is actually a very Greek idea. King Croesus’ Lydia was the first state whose currency was so sound it was used internationally. It remains a famously good idea over millennia.
Aren’t the tories quite well allied with the Lib Dems on civil liberties? No ID cards, stop DNA database?
Brian
But I don’t believe them. And they have supported most of the “anti-terror” nonsense.
Craig,
While the Euro may be physically printed by the various member states, all authority to do so is with the ECB. I.e. my understanding is that member states can /not/ print/create euro nilly willy as they wish. Can you explain what you mean there?
Paul –
I don’t mean printing in the physical sense. Notes and coins are only a tiny proportion nowadays of the money in the system.
Indeed, quite right, Craig. I thought much the same thing. The Euro is used by agreement, but without Eurozone membership, in Andorra, Monaco and San Marino, and was adopted unilaterally by both Kosovo and Montenegro on pretty much the basis you suggest for Greece.
What a wonderful post for 1st May! Good on you, Craig: Gorgon-slayer. Perseus would be proud!
Economics is mainly Greek to me. But here’s a question: if European integration has allowed an economic disaster in Greece to potentially affect the rest of us, shouldn’t we stay out of the euro, whereas I always thought the LibDems were in favour of it, at least till the recent debate ?
Where’s the “directly elected federal EU government” option?
I believe Lib Dem Euro policy has always included preconditions (i.e. fudge room, like Brown’s famous 5 tests).
There was an article from Paul Krugman a while ago where he argued that the lack of a strong EU government combined with the lack of mobility of EU workers meant it could not cope with a local recession. I’m trying to find it.
The US may be as economically diverse as the EU but it had a federal government before a single currency.
The way I hear the story being told at the moment, keeping out of the Euro so far hasn’t meant that sterling is safe against disaster.
http://www.nytimes.com/2010/02/15/opinion/15krugman.html
Krugman is now suggesting that if Greece defaults leaving the Euro won’t make matters worse for it as they will be rock bottom anyway.
Abe Rene
It is not the Euro which caused the disaster in Greece, and neither France nor Germany face disaster.
Krugman again:
http://www.nytimes.com/2010/04/30/opinion/30krugman.html
The article summary from the RSS feed is:
When Greece, Portugal and Spain joined the euro zone, they put themselves in a policy straitjacket. Now they face a debt crisis. There is a lesson here.
“she engineered into a massively popular war the crass Argentinian invasion of the Falklands, and never looked back. The Tories could pull such a trick again”
Could they ? You don’t think Blair’s history has weakened the idea somewhat ? Back then, a war seemed like a novelty; not anymore.
Incidentally, has anything constructive been done about the Falklands since then, or could it all happen again, depeneding only on Argentina ? Mutterings about the oil thing a month or two back rather seemed to suggest the latter, but I have no knowledge. It’d be nice to think someone tried to do something about arranging for it not to come back.
“Could they ? You don’t think Blair’s history has weakened the idea somewhat ? Back then, a war seemed like a novelty; not anymore.”
They’re not really comparable wars. If Thatcher had gone to war on the suggestion that maybe Argentina was capable of invading the Falklands and Thatcher had then invaded and occupied the entire country then they’d be more comparable.
I doubt anyone would oblige Cameron by invading a British ODT.
“Incidentally, has anything constructive been done about the Falklands since then, or could it all happen again, depeneding only on Argentina ?”
It has a larger garrison now if that counts.
Chavez declared if Argentina were to go to war over Las Malvinas again it would not do so alone. I expect it was only South American continental pride bluster.
I do agree with most of the thrust of Craig’s arguments about Greece… but… one can choose to look at the debacle from a different perspective which leads us towards an even more frightening set of conclusions.
Greece has had an exstremely unrealistic and irresponsible economic policy for years, based on courting popularity by stoking the fires of an “artificial” economimic boom which benefitted the interests of the Greek elite disproportionally, and was, therefore, popular, with critical voices sounding warnings about the bubble marginalized as the party seemed to go on forever. Sound familiar?
Sure the Greek government borrowed heavily, but who lent them the money and why? Are we to believe that a bank like Goldmund Sachs had absolutely no idea that Greece was in a dire financial state? GS not only provided Greece with massive loans, they actually helped to hide the size and nature of the loans and effectively were involved in giant fraud; but this is par for GS.
GS provided Greece with loans because they didn’t care that they would not be able to pay them back. GS understood that providing loans to Greece was a “trojan horse” enabling them to gain access to Europe and force the German’s to pay off Greece’s bad debts because a Greek collapse could start off an avalanche in the Eurozone with terrible consequences to follow.
Other banks followed GS’s tactic. The same basic tactic they used in the US itself, where a totally irresponsible lending policy was adopted because the banks calculated that, in the end, the state would be forced to step in and cover their losses at the roulette wheel called the market, or face the consequences. So one can argue that the banks have been gambling on the price of a Greek default and collapse being too high for the Eurozone to accept and their blackmail tactic was foolproof. They win no matter what, as long as they can get the poor taxpayers in the US and Europe to pick up the tab.
This is the crucial point with Greece, gaining access to the treasuries of Europe and taxpayer funding, precisely as in the US case. A massive transfer of wealth to the financial sector paid for by the taxpayer.
Finally, it’s not just about Greece alone. Greece being a small and weak economy is only the beginning, a loose thread to drag appart the entire Eurozone tapestry, start that and there are billions to be made playing that particular game.
Portugal is also in deep, deep, trouble; as is Spain, Italy, Ireland; and I would argue the UK as well; I forgot Iceland.
Is Germany supposed to bail them all out as well? And what happens to Germany’s finances? Can Germany bail them all out?
The financial markets want to undermine the European welfare state and transfer the resources used on welfare to the banks/financial sector/markets/ruling elite. A way to “reconfigure” the structure of the European welfare-state model, to the advantage of the markets is through the effective management of a “crisis” when everything is on the table, even things that were previously thought impossible.
Greece is only the first battle in a war, a war about power and resources, and how the “cake” is devided.
I should perhaps add, that my people have been involved in this kind of thing for centuries. The sword in one hand and a bag of gold in the other.
– “Incidentally, has anything constructive been done about the Falklands since then, or could it all happen again, depeneding only on Argentina ?”
– “It has a larger garrison now if that counts.”
I don’t think it does. I regard that as an acknowledgement of the problem, and a short/medium-term bodge, rather than a solution. A solution would involve stuff like not having to hope that the “other side”‘s talk is only bluster.
And… on a even wider perspective… most, if not all, Western banks are insolvent. Their debts/losses far exceeding their assets. This “collapse” is arguably bigger than the great crash of 1929, but because the state has stepped in to cover the losses, temporarily, the true extent of the crash is hidden.
However, the losses have been transferred to the state and the taxpayer at collosal expense, and the bill will soon have to be paid, one way or another. Through massive spending cuts.
In essence the real economy is being sacrificed to save the financial economy.
This has been the policy of successive western governments for decades. Serving the narrow interests of the financial markets, where massive profits could be made far exceeding those available in the real economy; the balance in the economy was turned away from production towards consumption, consumption paid for with the creation of gigantic levels of debt.
Whilst, on one level, this system, benefitted me personally, and my relations, other people have paid a terrible, ghastly price, as they were virtually turned into slaves, debt slaves.
The problem is, I don’t believe this kind of system is sustainable over the long term.
I often feel like an aristocrat living in a kind of virtual Versailles in the years before the French Revolution. Whilst, on the surface, it’s a truly wonderful, magical, luxurious, comfortable way of life, one can’t help thinking that it’s doomed, and the cracks are beginning to show in the edifice we’ve created and control. Surely it would be better to begin reforms now, before it’s too late? Share a little of our wealth and appear generous, rather than risk losing it all when the explosion comes, as it surely will?
Even if the Euro didn’t cause Greece’s collapse, the interconnectedness that it brings is what I was thinking about. France and Germany are strong economies at present, but if the ECB bails out Greece and Portugal, how long before their collapse has a knock-on effect on the bigger economies, which Britain escapes because its currency is independent? This would explain Nick Clegg’s recent about-face on the Euro.
Britain’s economic position, objectively observed, is dire; especially after thirty years of “partying.”
First one wasted the revenues from North Sea oil and gas. Then one destroyed the manufacturing base. Then one inflated the standard of living based on debt.
Britain is, arguably, in a very precarious situation because it’s outside the Euro, and the pound is massively overvalued, given the real situation of the UK economy.
In a nutshell, the financial sector is far, far, too big; but it serves a purpose I suppose, like the bloated military budget, of giving the false impression that the UK is still a great power, and not just Austria with a navy!
With the IMF coming in to bolster and address the Greek crisis…seems to me that that pretty much puts an end ( for now and the foreseeable future) of the Euro being any challenger to being the world’s reserve currency?
writerman and Courtenay: Webster Tarpley has a habit of turning out to be right. His views on Greece, Goldman Sachs, hedge funds and the assault on the Euro to stop it supplanting the dollar as the foremost reserve currency is worth a read:
http://tarpley.net/2010/03/04/financial-warfare-exposed-soros-goldman-sachs-hedge-funds-attack-greece-to-smash-euro/
Wonderful comment on the criminality of “treating”. Does this have any parallels in Canada?
The website provided gives ordinary citizens the means to take back democratic control of our parliament focused at one local electoral district by those eligible voters within the district. The beauty of this is the citizens have the authority and jurisdiction to collaborate willingly and voluntarily with one another, and once so inclined, the party partisan elite will be one MP removed from their current undemocratic control of parliament.
Please note, my webhost went AWOL and the site is not as “navigatable” as previously, nor does the email address work however host(at)v123p.ca does. Any good samaritans towards the cause of taking back our collective democracies have a collective interest in helping this along?
Best Regards,
Eduard
Some newspapers point out the similarities between the bank bail-outs of the financial crisis (“too big to fail”) and the Greek crisis (“too important to be let down”).
In both cases speculants will make their cut and all people who actually pay taxes in the EU countries will foot the speculant’s profits.
Ain’t it about time for a sound banking reform and more committment to diehard industrial politics instead of political support for the “finance industry”?
As far as I know (I might be wrong) the UK elite considers financial investments a tradition and looks down on blue-collar work (and very much on many kinds of work which doesn’t generate six-figured bonuses).
Is this really a traditional or cultural phenomenon and does this relate to the quite high regard which aristocrats who are the embodiment of “no-blue-collar-work” still enjoy?
Would abolishing the aristocracy (and maybe the monarchy) in the UK help to change this?
What do you mean by abolishing the aristocracy? The only entitlement they still have (other than inherited wealth and silly titles) is the handful of hereditary peers who get to sit in the House of Lords and no doubt those will be gone soon.
Stephen Walt on Greece and the Euro:
http://walt.foreignpolicy.com/posts/2010/04/30/its_greek_to_me
Quote:
“The central problem, as plenty of people pointed out, is that EU didn’t create the right institutional machinery when it created a unified currency. Once states give up their own currencies, they can’t deal with financial or fiscal crises by devaluation. With that flexibility lost, the EU needed far more centralized economic authority (e.g., a true European central bank and a centralized European tax system) to make things work properly. As one banker told me here, it would be no problem if Europe were really one country and Greece was just a poorer province. But Europe’s member states refuse to give up those powers, and so the stability of the euro rested on the naive assumption that all the member states would follow the rules and stay within certain fiscal targets. This was like assuming that it would never rain, or that at least everyone would always be carrying their own umbrella. Or as one European academic recently put it: European monetary union was “not ready for bad weather.””
“Webster Tarpley has a habit of turning out to be right.”
He’s a 9/11 Truther and a former ally of Lyndon LaRouche. By “right” I think you mean “bug fuck insane”.
(LaRouche has argued that the British Royal Family secretly runs the world, funded by its control of international drug smuggling. Err…)
amk: thank you for your thoughtful and reasoned response.
Overeach, or unsustainability, that is the question. How many conflicts and geostrategic resource grabbing by means of armed conflict point to the same underlying problem?
Countries and their rulers believe that they can get away with their lifestyles, regardless.
The Greek economy is in tatters and germany, seeing the prospect of a bail out for portugal on the horizon, is reticent, it will cause political upheaval and the political rightwing spectrum will be the benefactor.
A challenge for the EU and its ties.
“Iceland: Lessons to be Learned from The Economic Meltdown”…
http://tinyurl.com/2v7opqd
MJ: You’re welcome. If you’re going to make an appeal to authority, it does help to make sure your authority isn’t a nutter.
“Overeach, or unsustainability, that is the question.”
Or putting the cart of monetary union before the horse of fiscal union. It’s not like the EU is larger or more diverse than the US, India or China.