Sunday, June 28, 2015

Greece and the Eurozone

My opinion of the Greek turmoil was sought, and, rashly, I gave it to The Washington Post.

Greek banks will not open tomorrow. France's exposure to Greek debt amounts to about 3% of French GDP. Greek default and eventual Eurozone exit would be more costly to France than granting additional writedowns of the Greek debt. A rational compromise should therefore be possible, but both sides are torn among contradictory forces and subject to ideological blind spots. There is plenty of blame to be shared among the parties. I do not choose sides, but my sympathies are with the unfortunate pensioners, hospital patients, and civil servants in Greece who will be--and have been--the first to pay the costs of this five-year crisis.


bernard said...
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Art Goldhammer said...

Bernard, Yes, unfortunately, your analysis is spot on.

bernard said...

Art, I somehow managed to truncate my comment above. Can you please delete it. Thanks.

I broadly agree with you.

The referendum was the least damaging political avenue left to Tsipras and is indeed an astute move.

However, similarly, I have a nagging suspicion that any concession from the other side would risk Merkel suffering a divisive split in the parliamentary CDU-CSU. There is already a quite apparent difference of vocabulary, shall we say, between Merkel and Schaüble. The latter of course appeared like the natural successor to Chancellor Kohl for much of the nineties.

Then there are people like Donald Tusk, who likely did not veer left upon leaving the US for Poland. And countless others on the Eastern marches of the EU, who believe that economics are about people suffering equally for their sins (yes, the Greek people sinned a lot, not least the pensioners). Any one of those who are part of the monetary union would actually do well to think twice.

So, basically, the political landscape in Europe always made a deal highly improbable in my view, from the day the Greek voted to elect Tsipras. But there is more.

Unfortunately at this time, three storms are gathering and rapidly reinforcing each other: Greece, ISIS and the rise of populist parties. We are in August 1914 and the leaders in Europe are like noctambules stumbling towards the abyss.

It is possibly nowhere as evident as in France where the National Front is astutely campaigning on both the Euro and the Djihad, and makes gains every time France is struck by terrorism,and makes gains every time Europe appears undemocratic (how dare the Greek hold a referendum!)and every time the Euro appears to make life more difficult for the "common" people (well, the unemployment rate started rising 25 years prior to the adoption of the Euro, but this only demonstrates remarkable foresight). And of course the increase in the National Front influence helps hardening stances throughout the political spectrum vis-à-vis the immigrant population, which also contributes to the weaker members of that community radicalising. Of course these dangerous radicals are just a few thousand in a community of several million French Muslims, but the political damage that they are wrecking in France is unrelated to their small number: it took 25 years of constant terrorism to produce far right governments in Israel, it will take considerably less time in France, I fear.

bert said...

Barry Eichengreen, Art, in part because he writes with such a fine, clear style:

I'm rather less convinced than you of the tactical genius of the referendum call. Seems to me it was intended to separate the breaching of loan deadlines from the automatic imposition of consequences for breaching those deadlines, and to open up space for negotiation between the two. The Eurogroup finance ministers appear to have seen it in those terms. You're noticeably confident that Tsipras keeps his job no matter what the result. I'm less sure. I don't know what he has up his sleeve in the event of a Yes vote, but it'll need to be good.

Fancy doing a "J'Accuse" on Jean-Claude Trichet?
Any calling to account of political incompetents would have to feature Trichet fairly high on the list. The decision to raise interest rates in 2011 to head off the threat of inflation stands out particularly prominently among a succession of boneheaded moves.

Mitch Guthman said...


I've been reading a lot about the Greek crisis lately and your piece is one of the best I've seen. Thanks.

If I were a Greek, I would vote "no" on Sunday. There is simply no future for Greece in the eurozone. I think Krugman is right that all of the normal barriers to exiting the euro described Barry Eichengreen have already fallen and most of the horrific price of leaving are going to be paid by the Greek people no matter what. So they should leave and gain some measure of control over their fate. But the bottom line is that Greece's future in the euro is bleak and can only become bleaker---leaving the euro is the only hope for a better future.


I think you're basically right. The only thing I would add is that I've never seen anything like this in my lifetime. There's a real feeling of 1914 today. There's a surprising continuity of both the people making the mistakes and of the mistakes they're making. Everything is being sacrificed for a currency union that was fatally flawed from the start and probably can't be made to work unless all of Europe accepts a particular economic theory is incompatible with the social welfare state in much of the EU and is totally incompatible with the idea of the EU as an union of democratic countries.