Friday, 10 July 2015

The Euro And Greece: The Empty Trojan Horse

It is remarkably curious that Greece, a country of relative insignificance, whose economy is smaller than Volkswagen's, has dominated the UK media agenda with much frenzied anticipation of a eurozone meltdown. Leading economists began predicting 'Grexit' including the economist who is credited with coining the phrase, as did other 'experts';
"Grexit is inevitable, it’s an absolute certainty"
And not just economists, this what Daniel Hannan had to say on July 6th:

It's interesting that with a Greek deal looking increasingly likely when we went to find the above tweet last night we found Hannan has now deleted it. Thanks to the internet though it can be found elsewhere. I guess the deletion speaks for itself.

Among other predictions, such as the 'European project is dying' there has been ill-disguised Anglo-saxon gloating and praise for "little democratic Greece standing up to the bullying EU". Greece though did not vote to leave the Euro or indeed the EU itself. They had instead voted to keep spending Germany's money without the inconvenience of paying it back. It's worth noting that the UK is owed around £10billion by Greece.

Whatever the referendum was, an exercise in democracy it was not. Called at the last minute, the referendum was rushed through with no time to debate the complexities of the bailout package, there was an absence of a proper "yes" or "no" campaign, the government put the "no" option (which it favours) above the "yes" on the ballot paper, the Greek media have been accused of bias and breaking the law leading up to the poll and it now appears that the result has been ignored anyway.

In that sense the referendum cannot be fair, or be considered a reflection of a true democratic decision. Instead it was merely an exercise in trying to bluff the EU using the Greek people as pawns. We can only be grateful in this country that we have an Electoral Commission to help negate government referendum stitch-ups like this.

So rather blow apart the eurozone, instead Greece is capitulating. It has proposed and is accepting a deal far worse than the one which was put to its people in a referendum. It will crawl away with a whimper.

The reason of course, as we noted last month, is that the current crisis, and the Euro in general, has less to do with economics and more to do with politics. The current crisis has not come about because Greece ran out of money - there was a deal on the table - but due to Tsipras deciding to do politics, and he has not come out of this well. It would seem he has been rather naive when dealing with the EU and we venture as far as to say "out of his depth".

He had a much weaker hand than he seemed to think - Greece economically and politically is insignificant - and he played it badly. By calling a referendum he thought he would frighten the EU into a better deal by the threat of political contagion to the likes of Spain et al.

Instead the markets largely shrugged off the referendum result and the only consequence has been that he has annoyed just about every leader in the eurozone. Annoyed to the extent that the ever increasingly robust language coming out of the EU indicates how fed-up they are with Greece. Fed-up to the extent that Greece was given an ultimatum on to agree a bailout package or leave. Tsipras backed himself and Greece into a corner. He's had no choice but to climbdown.

And the reasons are two-fold. For all the gloating by the UK media, they have largely overlooked two key points. They can deal with the economic part of EU membership but uttlery fail to acknowledge the more important political aspect. For Greece to leave would be contrary to "ever closer union". The EU cannot politically afford Greece to leave.They will paper over the cracks until the "English Question" is resolved and then we will have a new treaty.

Secondly, despite "preaching" by British" commentators that Greece would be better of out, their own experience suggests the opposite:
When it comes to money, the Greeks learned a lot of lessons the hard way over many generations. The drachma has always been seen by them as a way for the series of corrupt governments to steal from the people through devaluations and inflation.
This is what monetary theft looks like from the Greek point of view, and why they don’t trust their politicians and central bankers in managing a currency. They’ve learned the hard way and won’t forget the drachma’s 82% devaluation against the euro in two decades.
Greece simply does not want to leave. So ultimately Greece's gestures were empty, they capitulated as we expected they would. If nothing else this saga demonstrates once again how badly served we are by our media which doesn't bode well for our own forthcoming referendum.
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