Saturday, 11 February 2012

By Default

It's another Euro crisis, so it's another deadline. It's reported that this weekend bankrupt Greece faces the ultimate decision of whether to stay in the Euro or not.

Now we have been at 'deadline hour' many times before, which has so far always proved false, so a little cynicism is in order. But the indications are that the momentum does appear to be heading towards a conclusion - I do agree with Richard North when he writes "There is definitely a sense that we are moving to the end game".

The pressure on Greece is intense and there seems to be a non-too subtle attempt, on behalf of the EU and Germany, to force Greece to default, and possibly exit the Euro. The likely reasons for the EU's bullying are manifold.

The cost of trying to save political face by keeping all the countries in the Euro has been superseded by the embarrassment of the Greek crisis to the Euro project, which has no prospect of ending anytime soon. Greece is an economic basket case - so the EU needs to get rid of, in part to try to improve the currency's 'respectability'. That Greece will default has always been a matter of when not if - a reality the EU has long known about. After over 2 years, weariness is creeping in. Greek promises are never kept and more importantly for some European politicians elections are due this year. Taxpayer's money to keep bailing out Greece is not popular to say the least.

The constant bailouts, or rhetoric, has also conveniently given time for the Eurozone to prepare for the inevitable Greek default - in short economic sandbagging. As Louise Armitstead argues in the Telegraph:
The bankruptcy of Greece is no longer the threat to the eurozone that it once was. For all the frustration caused by the constant delays - Greece missed four deadlines last week alone - the time has not been wasted. Banks have busily untangling themselves from the thicket of Greek debt; repricing and restructuring debt and taking large write-downs. In total foreign banks have slashed their exposure to Greece by 60pc.
In a note last week, Willem Buiter, Citigroup’s chief economist, said: “In early September 2011, we argued that the cost of Greek exit to the rest of the world would be very high. We now consider these costs to be much lower because the 'exit-fear-contagion’ could be contained.”
In essence preparations are being made to hang Greece out to dry, a view echoed by Jeremy Warner:
There is only one way of interpreting the set of fresh demands tabled by eurozone finance ministers last night in return for agreeing a new €130bn bailout for Greece – that they are now quite deliberately trying to push Greece out of the euro. All pretence at European solidarity has been abandoned, to be replaced by the vengeance of Shylock.

There is now no chance whatsoever of Greece making it in the eurozone. Economically and politically, the country is in meltdown. Richer Greeks...are all getting their money out as fast as they can, as those of us who have been gazumped in the London property market by Greeks bearing piles of wonga know only too well.

It's a disgrace what's going on, little short of the rape of Greece by its own countrymen, but it is an entirely rational and logical response to the grossly overvalued currency they find themselves with.
Greece has very little option now but to impose capital controls and leave the euro. The longer it leaves things, the more desperate will its plight become.
Despite enduring economic, social and political hardship strangely most Greeks still want to be members of the EU and the Euro. Sadly they are about to find out the hard way that membership of the EU, and more specifically the Euro, only works one way - it means doing what the EU orders when a member, and being jettisoned overboard without concern when an inconvenience. The other Euro members are saving their own skin but not without causing economic and social meltdown, without a care, in another country first.

But no doubt if the inevitable Greek default doesn't lead immediately to a Euro breakup, much rejoicing will occur in Brussels, along the lines of 'we're dealing with the problem'. However next up will be Portugal, and then... well close your eyes and put a pin randomly into a map of Europe.


  1. The EU/Merkozy's behaviour towards Greece demonstrates clearly that the idea of a country called Europe - or even a United States of Europe - was never going to work.

    There is no European Demos. There is no European identity or solidarity. We are Germans, French, British, Italians etc and when there is a crisis, we look out for our own interests first; as we should and as Merkel has amply demonstrated.

    I wish Greece would default, get it over with, and leave the Euro. When the first domino goes down, the others will soon follow - and the nightmare that is the EU will be over.

  2. Me too DeeDee99, though I worry about a chaotic default the consequences will probably be horrendous for us as well.

    Thatcher made a similar point about Germans being Germans and French being French etc in her famous (or infamous) Bruges speech in 1988.

    You can't buck the human instincts of belonging and nationalities.