Andrew Stuttaford writes that the new leftist government in Greece is flatly refusing to cooperate with its EU creditors and that there is no way the country makes it through February. But he also believes, in the end, the Germans will blink. It’s dangerous brinksmanship. I have to admit I’m surprised the “vampire currency” hasn’t already split in two (at least).
There’s been a striking increase in outflows from Greek banks of late. That’s not surprising. The real mystery is why there hasn’t been more.
At this point, it’s worth turning to The Economist for a brief reminder of why Germany might be feeling a touch under-appreciated:
Germans were told that sacrificing the deutschmark for the euro would involve safeguards, with an ECB based in Frankfurt, strict rules about which countries would join the euro and explicit bans on bailouts for struggling countries. But the rules were eased to let too many countries in, the ECB is now run by an Italian who is creating money and vast amounts has spent buying the bonds of struggling European governments and banks; the German taxpayer will probably end up paying the bill. The Greeks asked for debt forgiveness; they have already had it and their remaining official debt has a 16-year maturity and an average coupon of 2.4%. They would not get those terms anywhere else. Meanwhile, German voters, who went through a painful period of restructuring in the early 2000s to make their economies competitive, are told that such policies are inappropriate when applied elsewhere.
What The Economist (so often leery of giving unruly electorates too much of a say) fails to add is that German voters were never given a chance to reject this vampire currency. Their betters knew better, and that was it.
Over at the Daily Telegraph, Jeremy Warner fills in that gap:
Germans never wanted the single currency in the first place, for like Britain, they instinctively understood where it would lead – to a fiscal, or transfer, union which Germany, as Europe’s dominant economy, would be forced to bankroll. If given a referendum, they’d have said no.
Warner goes astray when he adds this:
But European monetary union was the price Germany had to pay for reunification; it was a way, other European nations naively believed, of containing the newly enlarged country and ensuring that it was properly integrated into the rest of Europe.
On the contrary, this was not a price that Germany had to pay. By the time that theMaastricht Treaty (which paved the way for the euro) was signed (1992) Germany wasalready reunited. It would have been perfectly easy to renege on any undertakings that had been given to, primarily, the French. No diplomatic effort would be complete without a little bad faith. What’s more the ‘final final’ decision to go ahead with the single currency was not taken until even more years had passed. What really happened was that German chancellor Helmut Kohl was obsessed with accelerating the EU’s “ever closer union” and he pushed the currency through, acting, he later said, “like a dictator” to do so.
Back to Warner:
From the start of the crisis it has been obvious to all dispassionate observers that it can only really end in two ways. Either the eurozonemust move rapidly towards the sort of transfer union which Germany has spent the last 15 years resisting, or it must be reconstituted in more sustainable form – that is the monetary separation of Germany and its satellites from the less competitive south, arguably including France.
In other words, some variant of our old friend the ‘Northern’ euro.
Now up pops little Syriza to speak truth to power. Whatever you might think about Syriza’s substantially unrealistic economic agenda, and its apparent love affair with the brutish Vladimir Putin, on monetary union at least, its leaders have told it as it is.
“The eurozone is going to be toast within a couple of years”, says Greece’s new finance minister, Yanis Varoufakis, unless it can create “shock absorbers and what I call surplus recycling mechanisms”. No monetary union that demands its debtor nations constantly shrink their economies in order to keep up with the repayments can last for long. The current situation is indeed a form of debtors prison, and a completely counter-productive one, for if you deny the debtor the ability to work off his debts, he’ll never repay them anyway.
That’s true enough, but let’s pay attention to Varoufakis’s sleazy euphemism: “shock absorbers and what I call surplus recycling mechanisms”. What that means is the looting of German (and Dutch, and Finnish and even Estonian taxpayers) in perpetuity. And it would be perpetuity. 150 years or so after Italian unification, the north is still paying for the south. Naples is still not Milan. How long will it take to turn Athens into Berlin?
No-one should think for a moment that there are any attractive options, but a division of the euro into northern and southern halves remains, all things considered, the least bad way to go. Sadly, there are few signs that it’s on the agenda.
What will happen then? My guess continues to be that the Germans will eventually (it’ll be camouflaged, of course) fold, but against a background of brinkmanship like this, events can take on a dangerous momentum of their own.
Watch the banks.