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09 July 2015

Financial Times: Europe will pay the price for Greece

A euro without Greece would be a much weakened enterprise: holding on to Greece would be costly. Losing it would be seriously expensive.

With Greece, Ms Merkel has fallen off the wire.

Whose fault? There is more than enough blame to go around. As Sigmar Gabriel, the German Social Democratic party leader has observed, Greece should never have been permitted to join the euro. With hindsight it was a mistake also to rule out in 2012 any possibility of sovereign default within the eurozone — though it is easier to make that case now than it was in the turmoil of those times. Subsequent bailouts left Greece with too much debt. Politicians in Athens made promises they never intended to keep.

The Syriza administration of Alexis Tsipras has been the worst of the lot — fuelled by a ruinous concoction of Marxist ideology, an abiding narrative of victimhood and breathtaking incompetence. There was a deal to be done with creditors. A more mature leader could have sought debt relief in return for fiscal restraint and a drive to stamp out the corruption and clientelism that disfigures Greek democracy. Instead, a modestly improving economic outlook has been replaced by the threat of financial collapse.

The anti-austerity government in Athens scored a decisive victory as voters backed its call to reject a compromise with international creditors, raising serious doubts about the country’s ability to remain inside the eurozone

The rest of Europe should take no pleasure in his discomfort. Righteous anger is not a substitute for intelligent policy. With Greece on the threshold of euro exit, politicians elsewhere have noted the calm in the markets. Surely this is proof positive that the eurozone’s firewalls against contagion will hold? I would not be quite so sanguine. Shocks are often, well, shocking even when they have been widely predicted.

In any event, the big risk is of political contagion. Politics saved the euro between when economists everywhere predicted its imminent demise. Such professional gloomsters underestimated the willingness of Germany to bend and, Greece aside, the brutal determination of debtor nations to stay in the euro. Now it is politics that could now bring the project crashing down.

The guiding emotion behind Europe’s present discontents is a pervasive sense of powerlessness. The perception that they had been robbed of all say explains the choice of Greek voters in last weekend’s referendum. Voting No collided with the wish of most Greeks to keep the euro, but, as an act of desperation and defiance, it spoke to the frustrations of citizens across the continent.

This is the mood that mainstream political leaders should fear. It has disinterred old nationalisms and served as the recruiting sergeant for the parties of the extremes now challenging Europe’s postwar centrist order. Marine Le Pen’s National Front in France, Beppe Grillo’s Five Star Movement in Italy, Podemos in Spain and Pegida in Germany — all peddle a populism that feeds off the sense that ordinary citizens have become helpless bystanders in a world run for the benefit of the elites.


The EU cannot be blamed for the insecurities of globalisation, for Mr Putin’s aggression nor for confessional wars in the Middle East. Yet the genius of the populists has been to channel public anger towards Brussels and its half-finished monetary union. European leaders have yet to offer a convincing riposte. They seem almost embarrassed to say that in a world where power is fast slipping away from the west, they are better off sticking together.

Greece is sui generis and, by and large, the author of its own predicament. Yet it remains a vital piece in the geopolitical stability of the continent. And whatever the central bankers and finance ministers say, a euro without Greece would be a much weakened enterprise — closer to a fixed exchange rate regime than a monetary union. Of course, holding on to Greece would be costly. Losing it would be seriously expensive.

Full article on Financial Times (subscription required)


© Financial Times

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