Greek referendum: a lose lose for Europe

I have always tried to avoid making predictions as unlike Mr. Ashdown, I have few hats and no desire to devour any of them. It does seem, however, as though the Greek population have rejected the terms of the latest bailout.

The saga of the Greek Eurozone experiment and its travails seems to have gone on rather longer than the Trojan War. How one analyses the blame depends to a large extent on one’s views on economics and the whole European Project.

On one side the Greeks cheated on the convergence criteria regarding joining the Eurozone in the first place. Then they used cheap credit obtained from the favourable Eurozone interest rates to go on a prolonged national spending spree ensuring higher salaries and better terms and conditions than their economy allowed for. Greece is significantly richer than its former Communist bloc neighbours in the absence of adequate superior wealth to justify that differential. Then, when the whole thing started to go wrong the Greeks demanded everyone else help pay for their profligacy. Finally when they do not like the repayment terms they are offered they hold a referendum effectively asking their own population if they would like to avoid paying their own way. It is a classic example of a country trying to borrow its way to national wealth.

The above is simplified but possibly not entirely wide of the mark.

There is, however, the counter argument:

Greece was economically raped and pillaged (raped and pillaged in many other ways too) by the Germans during the last war. After the war for political reasons to do with keeping the western bloc together this was not discussed. Then after German reunification it was again not discussed. The European bureaucracy then allowed Greece into the Eurozone when its economy did not meet the convergence criteria partially for selfish political reasons to do with ever closer union etc. The net effect of the Eurozone was to hold the German currency down allowing it to sell products more cheaply and make more money. When other countries such as Greece ran out of money to pay for German products the German banks then lent Greece money to purchase German products. Now the Germans want that money back even if it takes decades whilst ignoring the rape and pillage of the much earlier decade. It is a classic example of the privatisation of profit and the nationalisation of risk.

The most potent and least emotive counter argument, however to austerity, is that the austerity plan is simply not working and will probably never work.

One can argue the rights and wrongs of the above ad nauseaum.

More interesting, however, is the politics of now.

The referendum result probably produces a lose lose for the EU.

If the Eurozone capitulates and offers Greece debt relief it sets a serious precedent for the other countries in similar positions such as Spain and Portugal. It also drives a coach and horses through its frequently stated positions. Furthermore how accepting the politicians and population of Germany (and other Northern European states) will be of such a position is unclear.

On the other hand if the Greeks are forced out of the Eurozone it massively undermines the whole Euro project and the concept of ever closer union.

Then if Greece descends into economic and possibly political chaos that will be bad for the EU both economically and politically is a whole series of ways both predictable and unpredictable. Almost worse if Greece readjusted and then, reasonably quickly, did better outside the Eurozone (or even outside the EU) that would also undermine the whole European project

The other oddity is that the EU’s leaders thought that the Greeks would do anything other than reject their terms. It seems pretty obvious if an external group (even more so one headed by a country the Greeks have an historical antipathy towards) makes demands of a country that the typical result is what is best described using the Ulster Scots term: thranness.

That some in the heart of Euroland thought that the Greek population would back what was seen to be the plan of the EU (and Germany) over Greece’s politicians plan is bizarre. Therein lies another problem. Some in Brussels may believe in a country called Europe. Most Europeans, however, believe that the past, present and future is another country: the individual ones they live in.

After being told what to do by Europe rightly or wrongly the Greeks have been thran: as indeed have their creditors. What happens now is difficult to tell. No options are especially attractive for the European project.