The Greek mess is one in which there is plenty of blame for all sides.
Greece has been mismanaged, grievously, over the decades, with the result that it is a country in dire need of (still more) structural change. The Troika on the other hand have blundered, bumbled, blagged, bellyragged and buffooned blustered, hagridden by Dr Schauble’s Hoover complex and now unable to countenance change. Greece can neither move forward nor reverse course. It is now faced, partially from its own making and mostly by being goaded, with a Scirionian choice; either abject surrender to a failed policy or a leap off a cliff into an unknown, or more like both. Hammered by the Troika to fit their plans, cut back to fit a preconceived notion of what they should be doing, the Greek economy and society have been made rubble of, for no good reason. Despite massive restructuring and reform, nothing Greece can do will make a difference to the animus being shown it.
Lets start with the Troika. We now have the situation where the IMF accept that the plan which the Troika wish to impose on Greece will not work. And yet, theyc continue to insist that the plan, self admittedly unworkable and doomed to failure, that plan must be adhered to. Its is The Plan. No Stalinist bureaucrat ever worshipped The Plan with as great a fervor, while knowing it to be bunkum. The Greeks must implement a plan doomed to failure in order to succeed. Greece is an economic Ben Tre and we are witnessingthe economic equivalent of the statement that “in order to save the village it was necessary to destroy it”. The plan involves starving Greece to make it strong, a reverse Mr Creosote – just a tiny, wafer thin, structural surplus. The Troika having bailed out the creditors who foolishly lent money to Greece, indirectly violating (for the second time, after Ireland) the “no bailout” clause, the Greeks are now repaying the Troika with no benefit to themselves. This is a Procrustean bargain made in Hell, where Greece has to shrink to grow and has to grow to shrink.
Having made an enormous mistake in 2010 in bailing out private creditors on the back of the state (gee, where have we seen that before) the Troika are now unwilling to take the obvious step and park that debt. There are plenty of mechanisms for doing that but none that are acceptable to Dr Schauble, who has emerged as a man willing, perhaps even eager, to shove Greece under the train to fulfil his narrow political ambitions.
The consequence of such a demarche would be, ideally from the Troika perspective, a government made up of PASOK/New Democracy. These protean populists drove the Greek economy like they stole it, and eventually off the edge. Naive and inexperienced Syriza may be but they were willing to confront much of the ills to which Greece is heir, in terms of modernizing and confronting inefficiencies. But it is clear that Schauble and his followers, including Ireland, would rather see Greece go into the abyss, are actively seeking more regime change, would in fact rather see democracy overtaken than to see Syriza succeed. A policy of transforming bailout money into investment in Greece, each investment being tied not to pension cuts or ideological privatisations but instead to identifiable microeconomic governance and organisational change, that would be a sensible policy. This in fact is a variant of the Junker plan But we wont get that.
It gets worse. We have a ECB which has run a tight money policy in a European recession now cutting off liquidity in a Greek depression. This is exactly opposite what a sane central bank should do. But the ECB has been politicized, yet paradoxically not enough. Noonan joined with others in urging the ECB to adopt a particular monetary policy on ELA. Schauble has been vocal in so urging also. The ECB were it to be fully politicised would have turned on the liquidity taps in 2009 to save political bacon. Now it is neither one thing nor the other, neither independent nor subservient. The consequence is that it is not predictable, and we need central banks to be predictable in what they will do. Right now the ECB has become a body for Coordinating Of Pegs on Ordoliberal Unitary Principles… A COPOUT.
Then there is the cant, the hypocrisy, the sheer doublethink duckspeak of the Troika. Madame Lagarde, who pays no tax whatsoever on her $465,000 salary, urges the Greeks to pay their taxes. Enda Kenny claims that Ireland got out of the bailout without raising taxes, a surprise to all who have faced increased taxes. German politicians, playing to the Prudent Hans and Swabian Housewife voters, smugly neglectful of the duties of leadership, stand firm against the notion of debt relief, forgetting the 1953 London debt conference which absolved the Federal Republic of its debt burden, and indeed of debt conferences in the 1930s which aided them also. That debt relief was structured so that repayments only happened when Germany ran a trade surplus, something Greece does not do. At the heart of the Euro crisis is the twin poles of massive German export surpluses and peripheral deficits. The mechanism of the London Debt Conference bears both rereading and repeating, addressing the same issues as now. All this before we revisit the insistence that the Greeks put in place a program that the IMF accept will not work, because…
Commentary is not much better than the Troika. We are treated to regular opining and occasional chastisement from chaps, and they are almost always chaps, with sonerous sounding titles, from The Market. They revel in titles like Chief Fixed Income Strategist, or Head of Fixed Income Allocation, or Global Bond Portfolio Specialist. Second hand bond trader sounds so plebian, but that is what they are. In the same vein as we would not ask a second hand car salesman for their unbiased views on a product recall we might wonder why mainstream media almost invariably turns, like a dog to its vomit, to the same group for bonds. They are selling a product, talking a book, not being paid by their employers to tell the plain unvarnished truth but to sell. One could argue that the market rush to Greek debt in the run up to the EMU entry was at least a major part of the present problem. Fuelled by a bonus culture, the rush to yield fuelled the debt bomb. So why would we now expect unbiased, unvarnished truthiness? To be sure, some independent market based analysts do exist, mostly those that provide advice rather than taking a position, but they are outnumbered in comment by those with a book to talk. Caveat Lector, Caveat Auditor.
Mainstream media commentators are scarce better, with objective reportage a vanishing commodity, polemical screeching about the temerity of the Greeks in seeking a social view or lazy regurgitation of hackneyed myths passing for journalism .
If Greece leaves the Euro, somehow for nobody knows how that would be achieved, then we have no longer got an single currency. We will instead have a set of bilateral currency pegs. History is littered with the bones of such arrangements. Some last longer than others – the Euro is a youth compared to the 62 years of the Latin Monetary union or the 41 years of the Scandinavian Monetary Union. These failed. Indeed, one of the harbingers of the failure of the LMU was the expulsion of Greece in 1908. Absent a properly working central bank, with power of lender of last resort and with a sense of the role of monetary policy that is not rooted in a Hooverian fantasy, and with a sense of irrevocability gone, the Euro will be much weaker than it would have been had Greece been kept in at any cost.
Greece is a canary in the democratic coal mine. Ireland is full square behind the German view that regardless of what Syriza do they cannot be allowed to remain in power. Rumour has it that the quid pro quo for corporation tax not coming back into discussion was that we, the anti-Greece, the poster boys for the Troika, that we lined up to hold the coats of the big boys as they put the boot into Greece. And we did. But that is not democracy, it is naked power. A union of sovereign states must be constructed on the basis that each are as important as the other. This is clearly not the case here. Germany has made it clear that they would really rather not deal with the greek government. Their Scirionian tactics, demanding surrender and then planning to kick the surrendered into the depths, ill becomes a modern democratic state. For sure, a government dominated by a man who boasts of a tactic to terrify his enemies by kicking Greece out of the Eurozone doesn’t sound democratic, a man who has sat on a plan for years to do exactly that, and now is hell bent on carrying it through, that is terrifing. Perhaps the roots of German politics are showing?
This is an extended version of an oped in the Irish Times, 3 July 2015