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.
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.
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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