National Review Online
Thursday, July 02, 2015
Most of the smart money has been assuming throughout this
latest episode of the euro crisis that the Germans would eventually bail out
the Greeks one more time. That may still happen. Yet with Greece now in
technical default to the International Monetary Fund, and uncertainty about
whether Greeks will accept or reject new bailout terms in next Sunday’s
referendum, there is a real chance that the country leaves the euro, and fear
is spreading across Europe.
Some of this fear arises from the growing hostility in
Brussels and Berlin to the Greek prime minister, Alexis Tsipras, and his
leftist Syriza government. This is a government inspired by Darius Fo’s
neo-anarchist philosophy of “Can’t Pay, Won’t Pay.” It wants to stay within the
euro currency but without the “austerity” that doing so requires.
Athens can’t pay its bills (including its accumulated
debt and debt interest) by printing drachma, as in pre-euro days. Yet the
ruling party was elected to maintain Greece’s generous pensions and welfare
payments, so it needs still more of other people’s money. It may finally have
run out of that, and ordinary Greeks are waking up to the fact that their
savings, pensions, and other benefits may be at risk.
Germany is not the main problem for Athens here. The euro
is a good deal for Berlin — an undervalued currency that helps German industry
to run up large export surpluses both with other EU countries like Greece and
with wider markets. Admittedly, Mediterranean Europe needs a constant flow of
subsidies to pay for its people and industries made workless by membership of
what is for them an overvalued currency. But Germany shares the cost of these
transfer payments with other EU countries, such as Latvia and Slovakia, which
are often poorer than Greece. Increasingly, these countries object to paying
other people’s bills.
What has kept that anger in check until now is that
almost all European leaders are in thrall to the notion of “ever-closer union”
— or in the case of the euro to the notion of “irreversibility.” The euro was
designed to be a roach motel: You can check in but you can’t check out. That
“no exit” provision was meant to provide a fiscal discipline to member states.
If they couldn’t devalue their currency or print euros, they would have to keep
their spending and borrowing in check.
It didn’t work, of course. For the first decade of the
euro, the EU’s poorer countries all exploited the fiction that the euro made
them as creditworthy as Germany, running up huge debts at cheap rates. When the
2008 crash occurred, the party came to end and the markets repriced their debts
upward. But Spain, Portugal, Ireland, and Italy all swallowed tough fiscal and
structural “reform” medicine in return for the loans, subsidies, and guarantees
that Brussels, the IMF, and the European Central Bank gave them to stay solvent.
So did Greece, until Syriza’s victory, which reversed some reforms previously
accepted by Athens and began to talk the language of “Can’t Pay, Won’t Pay.”
Even that might not have prevented creditors from lending
them more money (with implicit taxpayer guarantees). What seems to have
stiffened the resolve of the European institutions is that Tsipras announced
that he would put the last offer from Brussels to the Greek electorate and urge
a “No” vote. Such a vote would probably strengthen Syriza’s hand politically,
but it would have no other moral or democratic authority. Countries cannot vote
themselves access to other national treasuries. But Brussels is allergic to
even bogus hints of democratic authority and is now hoping against hope for a
“Yes” vote and the fall of Syriza.
At the same time Syriza — which lacks commonsense but not
ingenuity — is turning the “irreversibility” argument against Brussels. In
response to revealingly vague threats from Jean-Claude Juncker that a Greek
refusal to pay its debts would lead to the country’s departure from the euro,
Athens replies that there is no legal or constitutional mechanism for leaving
the euro. And it will go to the European court to prevent its expulsion.
Unless there are additional surprises before Sunday’s
referendum, Greece will choose as follows. A No vote will likely lead to Greece
under Syriza leaving the euro; a Yes vote will mean a new Greek government
staying within the euro.
Neither side of this increasingly arcane dispute makes
sense.
The best all-round solution would be for Europe to
arrange substantial debt relief for Greece in return for its leaving the euro.
Greece would then switch to a new drachma that would fall against other
currencies and make Greek exports and tourism cheaper and more attractive.
After a turbulent, painful transition, Greece would then begin to recover from
its prolonged recession. The country would still be burdened by a socialist
government that thinks it can prosper by borrowing and taxing without limit. But
even that burden would be less crippling than a currency that requires them to
cut their standard of living by about 30 percent to compete with northern
Europe — and Greece’s government is anyway in the hands of Greek democracy.
On the same principle, if Brussels and the ECB were to
divide the euro into a cheaper “southern” euro and a higher-value “northern”
euro, then Mediterranean Europe as a whole would begin a real recovery financed
by growth and exports rather than by endless loans — and the taxpayers of
northern Europe would keep more of their money. After the inevitable period of
disruption, Europe as a whole would then enjoy more growth and a more balanced
economy coupled with less wastage of wealth.
The Greeks are fighting to stay in the euro that requires
them to embrace indefinitely the austerity they say they reject, and Europe’s
main institutions and leaders are determined to imprison everyone in a currency
that divides Europe into two enemy camps — rich donor nations and poor client
nations. All this because of a superstitious belief in a currency not as a
store of value or as a medium of exchange but as a symbol of eternal political
unity.
In Greek mythology, the Shirt of Nessus was a poisoned
garment that tormented the wearer when he put it on but tore his flesh to
pieces if he took it off. Today, the Nessus Shirt seems to be tremendously
fashionable. It’s very European.
But no sensible people die from an excess of fashion.
Removing the Nessus shirt would be painful, but the poison would stop.
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