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Greece: Between a Rock and a Hard Place - Commentary no. 373 |
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Europe has hit a real problem. It’s a combination of irreconcilable differences producing paralysis at the top. It’s the way the European project has been put together. Individual countries in the European Union have all signed up to a series of common goals. But they none of them have changed their spots. Germany is still Germany and Greece is still very much Greece. Most of the time this doesn’t seem to have mattered. But now suddenly, it does. The question is to what extent Germany can yield a little and become slightly less German and, at the margins at least, slightly more like Greece and whether the Greeks can become a little less Greek and little more like Germans. What is certain is that if neither is prepared to move at all, Europe will be heading for disaster.
Ultimately, the outcome is going to be determined by the degree to which both of these countries value the European construction which they have joined, as against sticking to their historical past with all that that implies.
The crisis means that leadership is going to be at a premium. Each country faces both ways. And Angela Merkel faces her own electorate. Her tough stance against seeming to agree to a Greek bailout, is winning plaudits at home. But they are easily won. It is less clear whether they are deserved. It’s the same in Athens where Mr. Papandreou seems unwilling to be pushed too far.
In the situation which the world seems to have got into today, we too easily fall into the business of blaming one another for the mess. There is a great tendency to divide the world into “good guys” and “bad guys”. The good guys are the countries with strong economies who have the credit balances and who are increasingly calling the global tune.
It’s the other guys with the deficits who are causing the problem. These latter have got to pull themselves together and live within their resources. It’s a tough world out there.
But have we got this right? Again we have to get back to Keynes to restore some perspective to our thinking. When the Breton Woods settlement was being put together at the end of the Second World War, Keynes was deeply concerned with having a system which would work towards balance in the global economy. In his view countries which ran economies which tended towards imbalance had to be avoided. Countries which tended to run a large credit balance were just as much a problem as countries which ran large deficits. Both sides had equal obligations to get back to a reasonable balance. Each had to avoid upsetting the apple cart. And it was just as dangerous for a country to pile up a huge credit balance as it was to pile up a huge debit one. Unfortunately at the time the US had emerged from the War as the world’s one and only country to have grown richer as a result of it rather than poorer. The Dollar was hugely dominant and the US was the only source of the manufactured goods which the world was clamouring for. As a result Breton Woods concentrated on the problem of the countries who couldn’t seem to pay their way. Such countries included of course Britain which, with it’s Sterling area could only survive in a Dollar world by virtue of Exchange Control. As a result we were morally compromised. Free trade was the only path to moral rectitude and we were making only slow reluctant progress to that Nirvana.
The trouble is that we still live in a world which, though it is long past the days of Breton Woods, still tends to live by the same rules. The difficulty now is that the Greeks have added to these prejudices. They are lovely people but the fact is that they have conducted their affairs with impropriety. They have cheated with their figures. They don’t like paying their taxes and they are not above a little political corruption. They have also fixed their retirement age to 55 while the German work on till they are 67. No wonder the Greeks are in trouble and the Germans are unsympathetic.
The danger is that the politicians are not going to behave in a practical manner. They’re too irritated to do that. The Greeks are in danger of being asked to change their national character which has been evident since they got their independence in 1832, in a couple of years. It’s not going to happen. Equally unlikely is any change of mood in Germany. Furthermore, European leaders are not helping either. What is needed is help from an organisation which is, strictly speaking, independent. What is required is help from the International Monetary Fund in Washington. That of course would be to offend the Europeans. What needs to be asked in these circumstances is whether the Germans are likely to step up to the plate and if they are not then Brussels must bow to the inevitable and ask the IMF to step in.
This is the test Europe needs to pass. It is the most important test which the Continent has to face since the original six came together and formed the Common Market. Europe must not fail.
Tony Rudd
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