One can’t help but admire the Greeks. To be sure, they lied and cheated their way into the euro, and even the threat of a referendum on the bailout may yet tip the eurozone into a financial abyss. But there is something to be said for actually consulting the people about their future. Greece faces a choice: a decade (or more) of Frankfurt-enforced austerity, or bringing back the drachma and defaulting on their loans. Neither option is attractive. But this is about sovereignty, not just about money. This needs to be seen as a choice of the Greek people, not a deal imposed from outside and aimed primarily at saving eurozone banks.
No wonder that George Papandreou, Greece’s American-born prime minister, gave Brussels no prior notice of his decision. The idea of a referendum goes against the whole modus operandi of the EU project, whereby the people are there to be invoked, not actually consulted. Papandreou knows that the issue of popular consent is pivotal. His country does not have the longest democratic record, and it is not known for civil obedience. He picks up the newspapers and sees the reawakening of animosities once thought buried, from Nazi cartoons to the anti-cuts crowd talking about the bailout as the economic equivalent of the Versailles Treaty.
Angela Merkel was right when she warned that another 60 years of peace cannot be taken for granted in Europe. And she ought now to ask whether this euro project is not stoking the very nationalist tensions it was supposed to eliminate. From the start, the euro has never been about economics. People do not debate it in calm, dispassionate terms. They spice their speeches with emotionally charged clichés such as ‘if the euro fails, Europe fails’. Or, in Britain, that being released from the various directives from Brussels would leave us ‘at the margins of Europe’.
The application of public scrutiny, even in the imperfect guise of the Greek referendum campaign, might not be a bad thing. It may bring some perspective to the debate, especially on the issue of who precisely is being bailed out. It is not Greece, exactly. What is essentially being proposed is a bailout of various European banks who foolishly lent the Greek government €130 billion that they are not going to get back. Germany’s Commerzbank is on the hook for €15 billion, France’s BNP Paribas for €37 billion. They have accepted they’ll be lucky to recover half of this debt, but even this is in doubt.
Perhaps the Greeks are capable of running their country along fiscally robust lines, and will adopt a culture where the majority declare and pay their proper due in tax. This, after all, was the condition on which it joined the eurozone and agreed to have its economy regulated by the European Central Bank in Frankfurt. But it is more likely that Greece will remain closer to the Latin American model: run your country into a muddle of debt now and again — and just go bust. After all, the Greeks pioneered default as well as democracy: the first recorded example of bankruptcy was when ten Greek municipalities defaulted on loans from the Delos Temple in 4th century bc. Greece has defaulted five times in the past two centuries.
This form of fiscal management — debts then default —is chaotic but workable. Argentina is thriving after its 2001 default and even Iceland is making a remarkable comeback. Gullible lenders always come crawling back, thinking it will be different this time. As David Hume wrote 260 years ago, ‘such great dupes are the generality of mankind, that, notwithstanding such a violent shock to public credit… it would not probably be long ’ere credit would again revive in as flourishing a condition as before’. This has always been true. What is entirely new is the eurozone notion that countries can and will change their economic culture just because their political elite have signed up to a new set of rules.
If the EU’s bailout plan collapses, we ought not to blame the Greeks. The project was doomed from the start. A monetary union was never going to work without political union. If the trigger had not been a threatened Greek referendum, then it would have been Italian default, or a German taxpayers’ revolt. The simple truth is that the eurozone does not have the money to bail everyone out. The proposed bailout fund is a chimera, as the Chinese quickly deduced when asked to supply money to it.
Greece will never be run like Germany, and all the summits in the world will not change this simple fact. The deluded eurozone leaders still think otherwise, flying here and there yet getting nowhere. Each new set of crisis talks seems to take them further away not only from reality, but from the people they represent. The EU leaders now live in a fantasy world of acronyms, and talk as if they actually have a trillion euros to spend. None seem to realise yet that they are arguing atop a mountain of debt, built upon debt.
If the Greek referendum comes to pass (the EU normally finds a way to halt or ignore such plebiscites), the debate will be chaotic, but still fascinating. It will certainly explore whether this is about Greece, or its corporate creditors: about economics, or political vanity. And perhaps it will consider whether a bailout, aimed primarily at keeping the euro project alive, could be the cruellest prescription of all.
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