Putting aside questions of economics and fault and blame and all the rest, the drama playing out in Europe over Greek default is an interesting example of the problems Europe has always faced trying to resolve its long-standing political tensions. The EU and more recently the Euro are seen in many quarters as bold attempts to reduce the risk of conflict that arises from a disunited Europe, but many euroskeptics and economists see the Euro as a very bad mechanism for doing so. War and conflict between nation-states is a political problem but the Euro is an explicitly economic process, and as the Greek drama shows, while in the good times the shared economic structures of Europe may have smoothed over some old conflicts, in the bad times they can exacerbate those same problems. Would the finger-pointing be quite as vicious if the Greeks were sovereign in their own currency? I don’t think so, and I don’t think German voters would care very much that the Greeks were about to go belly-up. There would also be no need for accusations of German bad faith – see this article, for example, as an example of insinuations that the Euro was just an exercise in destroying non-German industrial competitiveness (but bear in mind that the writer used to be an HIV-denialist, so his judgment is highly suspect).
So, putting aside the economic issues (and who in Greece wouldn’t want to!?), I think the looming default raises some interesting questions about the European experiment, and I’d like to ask two here.
Question 1: Is there any outcome but Greek exit or German defeat?
Based on reading from afar, it seems obvious that the Greek electorate aren’t going to accept austerity policies (or, more cynically, aren’t going to accept any policies dictated to them by Germany). They’re going to vote for a rejection of the austerity package and whoever wins votes on that platform will not be able to back down from that pledge. So barring some very unlikely events, the crisis will come to a head next month when an anti-austerity government tells the Germans where to put their sausage. But equally, the Germans don’t want to back down and the bigger states of Europe don’t want to be bankrolling Greece for the next couple of years – and they have their own euroskeptic hordes to appease. But the only way to prevent Greece defaulting if they reject the austerity package is to give them money for nothing, which essentially represents a complete failure of German political nerve. Furthermore, with Hollande replacing Sarkozy in France, this will also represent disunity at Europe’s core, and it’s pretty likely that other states (I’m looking at you, Italy!) will start thinking this is a) a good opportunity to get some of their own gains from that weakening core and/or b) a good chance to assert some extra authority over Europe’s future.
Is there any other outcome that can arise? The third possibility is an anti-austerity Greek government, newly-formed, accepting austerity demands. Likely? I don’t think so…
Question 2: Will Greek exit destroy monetary union?
My personal opinion is that Greece really needs to default and get out of the monetary union, and the best thing for most of the other smaller nations of the EU is to do the same thing. Greece is in the wrong part of the economic cycle for austerity, but can’t spend like a drunken sailor because Greece is not sovereign in its own currency. Obviously default and exit won’t be pretty – the New Greek Drachma will devalue, and new borrowing will be impossible for a while, I would guess – but default isn’t the end of the world, as Iceland, the UK and Argentina have all showed in the past. The alternative is basically to become a colony of Germany, incapable of competing economically or of devaluing the currency to compete through exchange mechanisms. Obviously many people in Greece agree with me, because they seem pretty serious about voting in a group of political parties hell bent on this goal.
So, if Greece does exit – and especially if Greece recovers economically after the usual 10 years of torment – then what incentive will other small countries have to stay? Not only will exit have been confirmed as an option, but it will also be seen not to be the disaster that everyone expects. Some of the Eastern European satellites may consider the same options. It may begin to look like the only people who want monetary union are Germany and France, especially given their strict demands for austerity policies probably don’t match the goals of other, smaller nations. And recall, too, that some of the smaller nations have strong anti-european blocs in their local parliaments who would like nothing more than to find leverage to destroy the non-monetary, political aspects of the union.
So, if Greece exits, will the Euro die soon after? Will we see a return to separate currencies, or a collapse of monetary union to encompass just France, Italy, Germany and Poland? And would this be a bad thing?
Question 3: Is this creative destruction for Greek politics?
It should be fairly obvious that a large part of the reason Greece is in this situation is weak governance – a lot of shenanigans involving shoddy tax collecting, fraud, and poor management of public money were responsible for the sudden discovery of Greece’s financial problems. In the washup, a whole bunch of new parties (most notably the new left, but also the new right) are coming to the fore, and this raises the possibility that they might actually be able to sweep the old, corrupt stalwarts of Greek politics (such as the socialist party, which I think has been something of a perennial ruler in Greece) away from the levers of power. My guess – knowing sweet nothing about Greek politics – is that this will be essential to reforming the governance structures necessary to allow Greece to maintain responsible public spending, whether it is in or out of the union. So it may be that the crisis presently gripping Greek politics is long overdue and essential. Mustn’t waste a good crisis and all that.
So, is the current political crisis in Greece actually of huge long-term benefit to ordinary Greeks?
I wonder if there are a lot of other governments of European minnow countries looking at what is happening in Greece as an experiment for their own future. And I wonder what the average Turk thinks about their government’s long-held goal of getting into the EU. Still looking like a great move? I think people inside and outside the Eurozone might be reassessing its value rapidly …
Question 4: Is this the pro-European left’s equivalent of greenhouse denialism?
Finally, this is a coup for right-wing euroskeptics, who can point out how they were right all along. Lots of euroskeptics and economists have observed that the Euro is a bad idea. They were right, though not always for the right reasons. Was the European pro-union left blind to these messages due to ideology? And was the extent of their blindness such that it could be said to be as one-eyed and stupid as AGW denialism?
fn1: in fact, the way some people describe it, the Euro does look a bit like a kind of fiscal version of old British colonial policy, which was to ensure that the colonies were a captive market for British manufacturing. The British did this through smashing native industry, but maybe if they’d enforced a strong monetary union they could have achieved the same thing with a bit less violence…