Tuesday, February 10, 2015

Greece has a new far left government who vow to end austerity, Greek PM Alexis Tsipras wants to write off the country’s crippling debts, this episode is an excellent opportunity for EU reform, Greece needs this early exit from Euro to get back on their feet

Dear All

The European Union states currently at 28 members, some of the 28 carry more power and influence than others.

At the top, the German/Franco alliance is seen as the place where power lies. Britain’s role has been described in various fashions but the one I like is ‘the maverick’, as an island nation we tend to be on the fringe while at the same time central to generating new ideas.

Britain has very much been in favour of reform of the EU but generally this centres round money, although ‘money makes the World go round’, the rule of thumb is that it should be spent wisely. I think the idea of a European Union has a lot of merit, trade builds bridges, it helps forge alliances and on occasion helps bring enlightenment. Although there is a lot of heat floating about, there is precious little light.

In the broad brush, the creation of the Euro seems like a good idea, however as they say, the devil is in the detail, the problem that the Euro has is too many members with economies don’t gel, the powerhouse of German and its manufacturing base cannot be compared to Greece or some of the other countries of Southern Europe. Greece for a number of years has suffered more than it should have because of an inflexible restraint place on it, austerity crippled them.

The political elites around Europe of the centre right all signed up to austerity dragging other countries with them, in effect, ‘never have so few sold out so many’. Greece politicians went along with only to find that their country was being dragged down, people suffered and stories of hardship emerged.

Did anyone seriously think in this day and age that Greek pensioners would be looking in bins for food?

How is that the European dream envisaged by so many?

Well there comes a time when people say enough’s enough and look elsewhere for political leadership. The country’s far-Left Syriza party has vowed to ditch austerity, you can see the immediate appeal of that, countries defaulting isn’t new, Iceland done it and so has other countries in past. The Greeks need £5billion of financing to keep the Greek economy running or they will go to the wall. On top of that, they have £185 billion bailout package to service or not if they chose to default on the lot. In truth the Greeks would probably write off a percentage not because of fear of defaulting on the lot but because they would want to sell government bonds and enter the financial markets after a partial default.

Some people would get their fingers burned but that is the nature of default, no one is happy not even those doing it, because it is an admission of failure. On the positive side, it is better to suffer pain now than wait and drag it out. If a default goes through, the former head of the US central bank Alan Greenspan says Greece will be forced to leave the eurozone. It would have been better if during the design of the Euro, a mechanism was in place for temporary withdrawal from the Euro by a member country if they experience major setbacks, Greece has suffered such an event. Rather than ensuring the country’s assets were protected, the Greeks had to sell some off; forced would be a better description, this further trapped them into austerity.
So, the failure of the Euro goes beyond not being properly designed, it has potential to wreck a country and bring it to its knees. When and if the default goes through, securing finance from other countries in the shape of loans will be every difficult.

New Prime Minister Alexis Tsipras hedging his bets that the EU will play ball has pledged to write off some of the country’s debts.

Then comes what would be a hugely difficult renegotiate of the terms of its £185billion bailout package. This would see countries like Germany firmly backing their banks who have lent to Greece, other EU countries would fall into line with Germany who say that the deal the Greeks got was ‘too generous’.

I doubt the Greeks living in austerity see their position as being ‘too generous’.

Greenspan says:

All the cards are being held by the members of the eurozone.’

When Iceland decided to default, they weren’t particularly interested in what anyone’s opinion was on the matter, once goodwill goes that is the end of the matter, of course, there would be a period of incredible unhappiness financially and politically.

But the real interesting part is that other countries within the EU could do likewise as other far left parties in those countries pledge to do likewise, this would certainly have a greater knock on effect.

Greece’s bailout is arranged by a trio of lenders, called the Troika – the European Central Bank, the European Union and the International Monetary Fund. It was a mistake letting the International Monetary Fund into Greece, the bailout of Greece should have been a solely EU internal matter.

British Chancellor George Osborne says Greece leaving the euro would cause ‘real ructions’ in the UK economy.

As if they care, if you aren’t part of the solution, you are part of the problem.

Osborne said:

‘This stand-off between Greece and the eurozone is increasing the risk every day to the British economy. Greece has worked hard to stay in the eurozone, and frankly a Greek exit from the eurozone in my view would have very serious consequences.’

For every bank holding debt which is now looking like being worthless or delivering a considerably lesser return.

Tsipras, the New Greek Prime Minister, was swept to power last month promising to stand up to the eurozone and usher in left wing alternatives. If he is in a position where he can’t default because his ‘client’ is the people, they collectively made a decision, now he has to force it through. One wonders if down at the European Central Bank if anyone gave much thought to how safety valves for the Euro should operate in practice, if Greece defaults, someone should get a quiet office, a good supply of coffee, pen and paper, stick up an ad for anyone interested in joining a working group and redesign the mechanisms for exiting.

Tsipras in some respects seems a tad populist among his other ideas is free electricity for poorer citizens and hiking the minimum wage.

He may have to put that on the back burner for some time because securing the economic survival of the State has to take his priority if he pulls the plug on debt repayment. 

Greenspan says something which I believe should happen as a temp measure, the Eurozone split in two. If you look through the blog, you will see I talk about two currencies operating in the Eurozone, Euro North and Euro South. It is doubtful that the Germans would wish to go down this route, they prefer to ignore others plight and continue as if nothing is wrong.

And there is a lot wrong but worse than that there is a lack of political will in the Northern countries to fix a problem which should have been address some considerable time ago.

The Greek Prime Minister will no doubt try and ‘do a deal’, if that falls flat then it looks like he is ‘off at Plumpton’ and EU will have to deal with the aftermath as banks call on government for bailouts, which will provide highly unpopular in member countries.

It would be interesting to see the ripple effect if that happens.

If I was the Greeks, the advice I would give would be to leave the Eurozone and set their old currency back up while remaining part of the EU.

I would disagree with Greenspan this episode would see the end of the Eurozone but what it should do is act as a major wake up call.

Where do you start?

By setting up two currencies in the Eurozone, Euro North and Euro South both of which would be run out of the European Central Bank, a carrot to get the German/Franco alliance onboard.

Yours sincerely

George Laird
The Campaign for Human Rights at Glasgow University

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