June 8, 2015
It is regularly pointed out that Greece is only 2 per cent of eurozone GDP, but maybe we should consider that the plughole is also only 2 per cent of the bath. Greece matters not just politically and financially, but morally too and this is why the behaviour of Brussels – and by extension our own finance ministry – in this sorry tale has been appalling.
Ghandi once observed that the weak can never forgive. Forgiveness is the attribute of the strong.
Greece is weak. And efforts now to humiliate its people further in the name of Europe risks not just a bank run in the next few days, but undermines the entire thrust of the EU which claims to be a community of countries.
Greece is a battered economy, a fractured society and one where incomes have fallen by a quarter in recent years. It is destroyed.
And it wasn’t destroyed by Syriza, its present government, but by a series of centre right and centre left kleptocrats who governed Greece with Europe’s blessing for decades.
The radical Syriza is the consequence not the cause of Greece’s problems. This is the simple truth.
Greece doesn’t have a debt to GDP ratio of 180 per cent because some radical bunch of Marxists seized power. It has a massive debt ratio because the centre pro-EU, middle ground destroyed it, borrowing from European banks and blew the cash.
These are the guys who hang out together in Davos, high-fiving each other in the corridor of power. I know this because I have seen it.
Last Friday, Greece said it wouldn’t pay the IMF this week and it would roll up its debts to the IMF with those to the EU and pay them all at the end of the month.
Syriza leaders say they are unwilling to burn any more of the country’s dwindling cash reserves to pay creditors until there is a credible offer on the table. They have, not surprisingly, insisted on paying pensions and salaries. If they have to default on creditors so as not to default on their own people, so be it.
Can you blame them?
The idea that Greece might be either forced to (1) leave the euro or (2) raid the savings of its own people to pay part of the creditors’ bills, has prompted ordinary Greeks to take their euros out of the banks.
Deposit flight was already running at €400 million a day. Once this starts, you are in full bank run territory. A country I visited two weeks ago, Argentina, experienced this in 2002. The Argentinians introduced limits on the amount of money people could take out of the banks every day as well as capital controls which sought to stem cash leaving the country.
This was called the Corralito – which is Spanish for a type of playpen. So the idea was that your savings are corralled into a playpen, just like a baby, and you can’t get out without the permission of an adult.
They did this to stop a massive bank run. It is not inconceivable that Greece might have to do something similar over this weekend. Otherwise, it will simply watch Greek deposits flee. Why would you keep your money there now?
At the moment, the ECB is just about keeping Greek banks open, however, if there is no deal on Greece restructuring its debts, there is every reason to worry about the banking system.
In its most basic form, the EU wants more austerity in return for a Greek deal. Up until last Thursday, this give and take was understood by both sides and it seemed that there was a good chance of a deal with the Greeks giving just enough and the EU accepting a victory.
But on Thursday, the EU upped the ante in terms of how much austerity the Greeks had to stomach and this seems to have been a final straw for the Greeks, prompting them to miss their IMF payment.
What we now have is the prospect of a Carthagenian peace. This is what Keynes perceptively termed the Versailles Treaty, warning that destroying Germany with reparations would lead to disaster.
The expression comes from ancient history which also won’t be lost on the Greeks. In the final Punic War between Rome and its great enemy Carthage (Hannibal and all that), the Romans won and destroyed the city, knocking down every building and selling the citizens into slavery.
Such total devastation of the enemy is what the Romans called peace.
The EU seems to be on a similar path. The Greek economy simply can’t recover under these terms because it will raise taxes to pay off debts and this money will just flow out of the country, making it weaker still.
One of the other Greek concerns is that the IMF – supposed to be an even broker – is singing from the creditors’ hymn sheet.
Ashoka Mody, the IMF lad who was knocking around here a few years ago, observed last Friday: “Everything that we have learned over the past five years is that it is stunningly bad economics to enforce austerity on a country in a deflationary cycle. Trauma patients have to heal their wounds before they can train for the 10K.”
The position of Ireland in all this is egregious. There was a time when we used to have a moral side to foreign policy, when the Department of Foreign Affairs stood up for the weak. It may have only been ceremonial as with the Palestinians, but it is an expression of a national position.
The EU is about to turn the Greek economy into the financial equivalent of the Gaza Strip, devoid of capital, hope and the potential for growth, left to fester in the south-east of the Balkans.
And then the EU expects these same Greeks to man their borders to turn back desperate refugees who want to live in the EU? If I were a Greek minister, I know which way I would look. I would, like the Department of Foreign affairs, look the other way.
David McWilliams hosts dalkeybookfestival.org next weekend