What Britain should learn from the Greek deal fiasco

The Greek debt deal fiasco has exposed Europe for the mess it really is. It's a huge warning to Britain ahead of the EU referendum, says John Stepek.


The Greek debt deal fiasco is a huge warning to Britain ahead of the EU referendum

Greek prime minister Alexis Tsipras has managed to push the austerity measures demanded by creditors past his colleagues in parliament.

The way's clear for talks to begin on a new bailout package to keep Greece in the eurozone. And Greece looks set now to get a €7bn loan to tide it over in the meantime we'll come to that in a minute.

Expect a lot more political ups and downs. No one is very happy about the deal, but they don't want to leave the euro either. It's the same old story as it's always been. No change there.

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No, for me, the real lesson here is for the UK

Greece isn't leaving the eurozone not yet anyway

Long story short: Greece doesn't want austerity, but it doesn't want to leave the euro. It can't get its way on both of these things, so it's opted to keep the euro and the austerity.

Ultimately, the outrage is of the "I want my cake, and I want to eat it" variety. No one, as yet, has the guts to march Greece out of the eurozone. And until that happens, I can't see it breaking up.

So there you go.

What's more interesting to me is what all of this shows about Europe and what that means for Britain's approaching EU referendum.

I wonder if when the Greeks joined the euro they imagined that one day a German-led group would be discussing the minutiae of rules governing their bakeries, for example.

Greece has plenty of things that can be improved in its economy, unquestionably. But that's not really the point you can pick fault with any economy. And in economics, very few things are cut and dried. There is no definitive correct' way to do anything.

For example, if Europe was run by the French or the Italians, for example, then the onus would be on German companies to pay their workers more and to encourage more consumer spending in Germany. Instead, the onus is on the southern Mediterranean economies to be more German.

And if you look at it in depth as everyone is doing to the Greek economy then you're always going to find stuff you disagree with. An outsider looking to improve German economic efficiency might tell them to stop spending money on wind turbines and reopen their nuclear plants and burn even more coal.

I'm not saying that's a good idea. As someone who doesn't have to pay any electricity bills in Germany, I'm rather hoping that the Germans will continue with their renewables policy until they get it to work efficiently, and then everyone else can adapt it.

But the point is, we all have our pet projects and cultural hang-ups. Imagine a group of foreign experts coming to Britain and having free rein to dictate changes to the NHS. They might have good intentions some of them might even have good ideas but there'd be rioting in the streets.

This is a club that doesn't abide by any rules

You can say that this is all part of the price of being in the eurozone club. But the problem with this club is that the rules change all the time, depending on how important you are and what time of day it is. And no one gives you a list of the rules before you sign up.

And ultimately, as a voter, you have very little say in whether your country signs up to it or not. Voting is positively discouraged, and unhelpful' results are ignored.

As far as Greece goes, it looks like they'll do what they have to, in order to stick with the euro. The fact that it's been such a rollercoaster ride doesn't bode well for any future blow-ups with larger member countries. But those are crises for the future.

If we're going to take anything away from this, then it should act as a warning to the UK. This is a club that operates by its own rules and primarily according to the goals of its key members Germany and France.

There's no way for national voters to influence those decisions meaningfully (remember that Greek no' vote? Hah!).

And those who argue that we should be at the table' to influence the decision-making are delusional. Look at how David Cameron's cast-iron guarantee that Britain wouldn't be tapped to shell out for Greece turned out.

You know that €7bn I mentioned earlier? That's coming from the European Financial Stability Mechanism (EFSM). Britain contributed money to this, and it wasn't meant to be used for bailouts. Cameron thought he'd agreed that in 2010. He didn't want non-eurozone taxpayers on the hook for problems that ultimately arose because of the strains of adopting the euro. Which seems fair.

But in casting about for a way to tide Greece over until another bailout can be agreed, the EFSM is just what the eurozone needs. So they're going to use it, riding roughshod over British objections.

Cameron has been left grasping for get-outs such as indemnities for non-eurozone contributors to the fund. But ultimately this is a weak attempt at face-saving.

As the FT puts it, "the use of the EFSM raises serious doubts about the legal weight of a political deal among EU leaders exactly the type of deal Mr Cameron may have to defend in Britain's EU referendum".

To me, the main risk is that a vote to remain in the EU is not seen as a vote purely for the status quo (even although that's all that most voters will probablybe consenting to). Instead it'll be taken as a green light to go ahead with any future integration. Any future objections from the populace will be silenced with: "Nope, you had your chance in 2017. That's when we settled this question."

And who knows? Maybe at some point we'll have France and Germany poring over our economy and telling us how we can fix' it.

If seems far-fetched now. But if you haven't seen Merryn's interview with Roger Bootle of Capital Economics on this topic, it's well worth a viewing.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.