EDITOR'S LETTERMerryn Somerset Webb
Why I worry about Grexit
Two years ago, I interviewed Bernard Connolly about the eurozone. Given the title of the book he published 20 years ago – The Rotten Heart of Europe – I wasn’t expecting him to be much of a fan of the way things were going. But it was still sobering. The people who built the eurozone cared nothing for economics, said Connolly. They cared only for politics.
The idea from day one was to put in place a mechanism that its architects hoped would eventually force full fiscal, and hence political, union, however painful that might be financially.
Connolly reckoned it couldn’t work. It would never be possible to homogenise enough, and without currency movements to reflect that fact, the less-productive countries would be caught in an endless spiral of internal devaluation – collapsing wages, falling living standards and rising unemployment – which quantitative easing will only cover up for so long. It could only work if Germany was prepared to keep transferring money to the weaker economies – which its population just wouldn’t be.
Worse, the attempt to homogenise economies and force political union would, said Connolly, result in social unrest. People need to feel a sense of belonging to a group and having power within that group. If they don’t get it via their nation, they end up “viewing themselves as belonging to a religious sect… or a racial or linguistic group”, or holding more closely to their sense of nationhood than before.
That doesn’t tend to end well. Connolly looked right in 2013. He looks even more right now. Greece has found itself in exactly the downward spiral he saw for it, Germany is kicking up about the transfers, and it already isn’t ending well.
• Read the full editor’s letter here: Why I worry about Grexit