A euro tragedy
Published: 08 July, 2015
Anyone following the Greek euro drama over the last few weeks would think that the silly season had arrived early as the reality of what has unfolded is almost beyond intelligent comprehension.
The Greek crisis has laid bare not only the fundamental flaws of the euro but also raised serious doubts as to the future direction of the EU. It is worth noting that the euro crisis has exposed not only euro zone countries but everyone – Britain is not immune from the fallout.
Figures from the Bank of England shows UK lenders, pension funds and other financial firms had £2billion tied up in Greece at the end of March. That was the smallest amount since records began in 2004 and down from £9.6billion a year earlier and a peak of £12.4billion in March 2008.
British banks have been pulling out of Greece in order to protect themselves from financial and economic collapse.
Although Bank of England and Treasury officials say they are confident the UK financial system can withstand a Greek default and exit from the eurozone, they are worried about the knock-on effect on economic confidence. Earlier this year, bank governor Mark Carney told MPs that British banks had ‘a very small direct exposure to Greece’. But he has raised concerns about the impact of a Grexit on economic stability in the eurozone, Britain’s biggest trading partner.
Europe accounts for about half of Britain’s exports and the weakness of the euro has already made it harder for UK manufacturers to compete as the stronger pound has made the value of our goods and services more expensive. It is therefore imperative for British industry that the crisis is resolved quickly.
At the time of writing the United States entered the debate with its serious concerns as to the manner the negotiations have been taking between the Eurogroup, ECB, & IMF. President Obama, said serious consideration should be given to massive debt relief for Greece in order to keep it in the euro zone. Many leading economists have reportedly been asking why it was never on the table at the start of negotiations - questioning the tough stance taken by Germany.
Debt relief would be in the interests of the EU as a whole to avoid further economic uncertainty, but it is sad it has taken the US president to speak to Angela Merkel and the European Commission to highlight this almost inevitable and obvious fact. So bleak has Europe become, so lacking in solidarity, that an agreement worked on for weeks, embodying further austerity for the Greeks and further financial solidarity by the rest, could not pass through either side. It is ironic that the ECB, the institution charged with maintaining financial stability and bank solvency, has actually created the opposite.
The ongoing debt crisis and austerity conditions imposed on Greece in return for bailout loans have devastated the Greek economy and society. Millions of Greeks have been forced into poverty as a result of the crisis, with solidarity networks stepping in to meet their basic needs. Unemployment in Greece is over 25%, with almost two-in-three young people out of work. The EU has failed Greece dismally – irrespective of the blame being leveled at the serious structural flaws in the Greek economy (and there are many) it is now time for the EU to swallow its pride and accept debt relief as the price of economic stability throughout the continent.
With attention now turning to debt relief as a way of saving Greece from Grexit, questions are at last being asked as to where exactly the bailout money for Greece went. Estimates claim that just 10% from the two bailouts totaling €252 billion went into public spending.
Much of the rest poured straight back out of the country: in debt repayments and interest to its creditors, many of them banks and hedge funds in the core eurozone countries, including Germany and France; and in sweeteners to persuade lenders to sign up to the 2012 bond restructuring that helped prevent the country crashing out of the euro - – this raises serious ethical questions.
In effect, the ‘troika’ of the European Central Bank, the International Monetary Fund and the European commission (Eurogroup) has simply replaced the banks and the hedge funds as Greece’s paymasters. The country’s overall debt burden has actually increased in the almost five years since it was first “rescued”, and of the amount still outstanding, 78% is now owed to public sector institutions, primarily the EU. How is this good for Europe?
Debt cancellation can work and has been proved to work. The suggestion of a debt conference based on the ‘London conference’, which agreed debt cancellation for Germany in 1953, should be seriously considered. The 1953 conference agreed to cancel 50% of Germany’s debt to governments, people and institutions outside the country, and the payments on the remainder were made conditional on Germany earning the revenue from the rest of the world to pay the debt. Greece was one of the countries which took part in the debt cancellation! Perhaps the same sign of European solidarity should now be extended to Greece – for economic stability within the EU it is a must!
Editor: Aaron Blutstein
Plant & Works Engineering
