It’s the day of the MoneyWeek conference. I’m looking forward to what promises to be a very stimulating set of talks, and to catching up with our readers.
We’ve had an annual conference for a good few years now, and one topic has proved to be a hardy perennial.
Obviously there’s the subject of house prices – they never go away – and regular rumblings of discomfort about the global bond market.
But there is one situation which has barely moved on in the past three years, and which really should have been resolved by now.
I’m talking, of course, about Greece.
Europe is getting tired of Greece
There was a very readable if somewhat brutal piece in the FT the other day from economics professor Francesco Giavazzi, headlined: “Greeks chose poverty, let them have their way”.
The short version of his piece was basically: “It’s time to stop indulging Greece – if they want to be a basket case economy for the rest of their lives, that’s fine, let them clear off out of the eurozone”.
It’s nothing we haven’t heard before, though it’s rarely put that bluntly in the FT.
But what did really strike me was his point about the amount of time and energy that’s been wasted on what should fundamentally be a small problem.
You’ve got Ukraine under siege. You’ve got major questions over immigration policies. Europhiles always argue that we should be part of this big block of countries so that we can wield more influence in the world. And yet Europe’s main concern for “more than five years” has been Greece.
Imagine, says Giavazzi, that president Barack Obama “was taking part in high-level talks for months on end, where little was on the agenda except the state of Tennessee.”
It looks like the negotiators are starting to agree. Yesterday, the International Monetary Fund (IMF) pulled its negotiating team out, saying “there are major differences between us in most key areas. There has been no progress in narrowing these differences recently.”
Meanwhile, European Council president Donald Tusk said: “There’s no more time for gambling. The day is coming, I’m afraid, where someone says the game is over.”
It’s the same problem as always. The Greeks don’t want to have less generous pensions, and the rest of Europe isn’t prepared to keep handing them money unless they at least commit to some sensible reforms.
The hard-money experiment in the eurozone
Are we near an endgame? No idea, frankly.
But what I find fascinating about the whole eurozone experiment is that in a way, the euro is a ‘hard’ currency.
The attraction of a gold standard (regardless of how you feel about the practicalities) has always been that it imposes an element of discipline on governments and economies. The euro has a similar effect on the more peripheral economies in Europe.
You can argue over how fair any of that is, but the point stands. With the drachma, Greece could get away with spending carelessly and having a highly inefficient economy. The downside was that borrowing costs were always going to be higher, and the trust of foreign investors was hard to win.
With the euro, Greece got to benefit from Germany’s economic reputation. But the trade-off – which only became apparent after the crash – is that it also means Greece had to be a little more German in its financial approach too. Which it hasn’t been so far.
Germany can’t tell the Greeks what to do. But it doesn’t have to. The euro is imposing ‘discipline’ on the country. The euro is the carrot and the stick. If the Greeks want to abandon austerity, it’s the euro they need to ditch. Germany has nothing to do with it.
Of course, that’s not what Greece wants to do. Instead, Greece wants limitless ‘fiscal transfers’ from wealthier countries in Europe to enable it to ditch austerity, and to keep the euro. Hence the anger at Germany (by which I mean the rest of Europe) – because it won’t offer Greece a free ride.
The truth is, the rest of Europe is desperate to keep Greece in the club. If it wasn’t, Greece would be long gone by now. Really, all that the rest of Europe needs is a clear commitment from Greece that it plans to ‘grow up’ as an economy. Sure, that might sound rich coming from somewhere as sclerotic and stuffed with special interest groups as France, but there you have it.
Yet even the Europhiles are getting fed up. Here’s the aforementioned professor Giavazzi – he so keen to kick Greece out now because “the euro cannot be a substitute for further political integration. Indeed, without such integration, the euro cannot survive – and today, Greece stands in the way of it.”
In other words, the grand project can’t go ahead while everyone is fretting about Greece. Professor Giavazzi might be in the minority for now. But so far, Greece has been indulged primarily because the architects of European integration have feared a ‘domino’ effect – if one country leaves, so will the rest. If they stop believing that – well, next stop, Grexit.
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