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Let Greece leave the eurozone

Plus: Why it’s madness to legalise cannabis

21 February 2015

9:00 AM

21 February 2015

9:00 AM

To listen to Greek government ministers addressing the outside world during their breaks from negotiations with eurozone leaders this week, it would be easy to form the impression that Greece had a mighty economy upon which all other eurozone countries were pathetically dependent. ‘Europe is going through the difficult process of understanding that Greece has a new government committed to changing a programme that has failed in the eyes of everyone who doesn’t have a vested interest,’ said finance minister Yanis Varoufakis.

The reality is that Greece is the dependent country, propped up by its creditors, and it is Greek government ministers who are having trouble in understanding the situation in which they find themselves. A mandate from their electors does not allow them to dictate the terms of their country’s bailout.

The Syriza-led government is right about one thing, however. Greece’s debts have reached the point at which it has become all but impossible for the country to repay them. Moreover, while you cannot blame the current government for the debts built up by its predecessors, there is scant sign that, given the chance, the Syriza administration would do anything other than emulate those which have gone before.

Restructuring Greece’s debts will just shunt the problem down the track so that we have an even bigger crisis in a couple of years. The threat of default and an exit from the single currency will hang over Greece until it actually happens. The sooner that is, the better. At present, a Grexit seems to be treated as the ultimate disaster which all sides must unite against in order to prevent. What it should be is the inspired solution which offers a route out of the mess.

Twenty-three years ago a British exit from the Exchange Rate Mechanism was similarly seen by many as the disaster which had to be avoided at all costs — even if it meant interest rates rising to an economically ruinous 15 per cent or beyond.


A few weeks after the ERM disaster, many were left wondering what all the fuss had been about. The economy was recovering, homeowners were able to afford their mortgages once again. It became clear that the struggle to keep Britain in the ERM had been less about economics than about John Major and Norman Lamont saving face.

True, Britain in 1992 wasn’t indebted in the way that Greece now is, but the chief impediment to a Grexit is pure vanity. The European political establishment cannot bring itself to admit that Greece’s acceptance into the single currency was a horrible mistake. Let Greece go, it fears, and we will all look like fools. If eurozone leaders can get over this emotional hurdle, they might begin to see that Greece’s membership of the euro is the problem. It pushed down Greek borrowing costs to an artificially low level during the good times; then, when the bad times came, it prevented the country from devaluing its currency to become more competitive.

A Grexit, to be sure, will cause pain to many. In the short term, life for Greek citizens may get worse as a sinking new currency pushes up inflation. Yet simultaneously, Greek exports would become cheap to the rest of the world. Holidays in Greece will become a bargain. The economy would be in a position from which it can recover so long as businesses are allowed to do business.

Syriza’s ideology is hostile to free trade, but a Grexit would leave it with only one sensible option: to let the private sector get on with creating wealth and leave its social programmes for another day.

We have seen enough of how Europe operates to know to expect a fudge from the current negotiations. A six-month extension to the Greek bailout, which will simply delay the actual resolution of this dispute, seems likely. But we hold a glimmer of hope that the worst might just happen.​

Reefer madness

Nick Clegg likes to say that the NHS should treat mental health as seriously as physical health. This would be laudable were his party not simultaneously promoting a policy guaranteed to increase mental health problems: the decriminalisation of cannabis and possibly its legalisation.

This week, a study by King’s College, London, adds to a growing body of evidence that the drug is one of the chief contributors to mental illness, with a quarter of psychotic cases caused by it. Banning something, of course, doesn’t mean people don’t do it — otherwise Britain wouldn’t have any cannabis users to study. But it is a certainty that legalising the drug would increase its consumption as it became more widely available. The number of cannabis users in Britain — 6.4 per cent admit to having smoked it during the past year — is an order of magnitude lower than those who drink alcohol.

If you are going to make mental illness paramount to your health policy, you should be trying to reduce one of the biggest causes of the problem, by making it more difficult to obtain cannabis. But then consistency never has been the Lib Dems’ strong point.


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