Quality | 2010.02.20
Better Greece than Iceland | Dan Roberts
Eurozone member states are in a better position to resist market speculation than those standing alone
Europe has been standing at a proverbial crossroads longer than bluesman Robert Johnson, but today truly forces a decision on the union. EU leaders in Brussels face a crucial choice: do they spend billions rescuing Greece from the brink of financial collapse , or do they opt for the Lehman Brothers option and let a national debt default serve as this year\'s lesson to investors and irresponsible governments.
Last night it looked certain the EU, clutching a German chequebook, would choose to stump up. The chance of panic spreading to other eurozone members and their already battered banks is a risk no post-Lehmans politician dares contemplate. Not only that, but the future of the single currency itself is at stake if Greece decides to pull out instead. Only the detail of the bailout remains to be decided.
What is more uncertain is what Brussels – and Berlin – demand in return. The fear on the streets of Athens is that Europe will impose the sort of austerity binge seen in Ireland, deepening the Greek recession and the sense of injustice felt by civilian victims of the credit crunch the world over.
But an alternative narrative is possible. So far, the Greek drama has been music to the ears of eurosceptics. Cries of "I told you so" echo from right and left as the recession exposes the predicted weakness of a single currency system that does not let overly indebted countries inflate their way out of trouble by devaluing. To some, it is a morality tale: cast with Greeks who fib about their finances, free riders in Ireland, and cocky Iberian property speculators. To others, it is a local version of the trade imbalances that wrecked the global economy, with Germany playing the role of China.
It is true the single currency both contributed to the credit bubble and made it harder to let the air out gently. Bank of England governor Mervyn King was positively smug yesterday when asked about the travails of the eurozone, revelling in a rare moment of schadenfreude as the plunging pound finally breathes some life into British manufacturing.
Yet just as the prospect of a Greek bailout has turned the tables on investors who were speculating on its demise (a short squeeze, in the parlance), the political tide may yet turn against the sceptics today if Europe can hold firm.
Supporters of the single currency should be able to point to a Greek rescue as a sign of its strength as well as weakness. Unlike Iceland, which is desperate to join the euro, or perhaps Britain (if the predatory currency speculators one day turn their attention there again), eurozone member states will demonstrate their unwillingness to be picked off one by one.
In exchange, Europe\'s politicians will have to complete the project they began 18 years ago in Maastricht. Monetary union (a single currency and interest rate policy) will now need to be followed by much greater fiscal union. No longer will German taxpayers tolerate fiscal free-riders, but no longer will Berlin and Paris be able to ignore the plight of the periphery.
Whether Britain is ready for this is a quite separate question, but sceptics might want to note that the abusive acronym PIGS – coined to describe Southern European laggards Portugal, Italy, Greece and Spain – has recently been amended by wags in the City to STUPID (Spain, Turkey, United Kingdom, Portugal, Italy and Dubai).
Relying on a fall in sterling to sort out the structural woes of British industry also looks brave. Southern European economies were no healthier when they were able to postpone change by simply devaluing their way out of trouble.
Long-term international competitiveness should not be about a race to devalue but the race to add value – particularly in hi-tech sectors such as telecommunications, where Europe has lost its lead during a decade of complacency. The continent\'s ultimate challenges are not financial, but industrial and social: how does it use its human capital to compete on quality, not price?
The other long-term challenge is to make globalisation work for people, rather than markets. The effect of speculation on the eurozone crisis is easy to exaggerate, but it is real. More transparency and rules would help, but the best answer to those who try to make money from the misery of others is to show them that Europe\'s taxpayers stand united against them. There is a reason why speculative runs start with the weakest first.
Even in the short term, I\'d still rather be in Athens than Reykjavík.
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]ulators-eurozone-crisis-greece
