Eurozone crisis: No more hide and seek
20 July 2011
The extraordinary Eurozone summit on 21 July is supposed to put an end to the Greek crisis. A well-known Athens columnist argues that decisive action is long overdue, because the Greeks are tired of doing what they are told and obtaining nothing in return.
The German approach to the Greek problem is a bit like a game of hide and seek. In response to several requests, Angela Merkel has finally agreed to participate in tomorrow’s European summit. But she has already ensured that decisions taken by the meeting will have absolutely no meaning. She has even said that there will be no “spectacular” solution to the problem of Greek debt. And reading between the lines, this means piecemeal measures.
The nation state has been one of the main victims of globalisation. We no longer have the freedom to take action against industries which transfer their operations to places where labour is cheaper or environmental standards are lower. Worse still: we have no way of stemming the flow of hot money in and out of markets, where bond prices plunge and soar, or embark on a roller coaster ride between two extremes. And now we have to contend with credit default swaps (CDS) – instruments that Warren Buffet has accurately described as "financial weapons of mass destruction."
For months, we have been watching a tug-of-war between European states and the markets, which are sceptical about the solidity of the euro because they believe that a monetary union is unsustainable in the absence of a common policy. What began as a Greek problem has emerged to plague Ireland and Portugal, and is now spreading like a cancer across Europe.
The forces of economic and monetary capitalism are not fooling around. They want Europe to make its position clear. But the trouble is politicians prefer poorly defined positions that don’t oblige them to commit to future initiatives. The Germans have always said that they would support the euro, but they are much more lukewarm on the issue of support for Greece. Not to put to fine a point on it, Berlin has spent the last 18 months dragging its feet. And the problem has come to head over the last six weeks.
Even the worst possible solution is nonetheless a solution
The Papandreou government came under pressure to vote in another austerity package in exchange for another loan of 125 billion euros to keep the country going until 2015. The pressure was such that it very nearly resulted in a unity government, but finally a simple reshuffle was enough. So the package has been approved by parliament, but we have yet to see the loan that was supposed to accompany it. If there is no comprehensive solution announced tomorrow, Europe will have forced the Athens government to pay a very high political price without offering anything in exchange.
The Greek debt crisis has resulted in a situation in which someone is going to have to take some losses. Either we will be funded by taxpayers in northern Europe, or the banks and insurance companies that bought our bonds will have to take a haircut – and this is the solution favoured by Berlin, which wants them to participate in the bailout.
However, the European Central Bank has vetoed this option, arguing that it would amount to de facto restructuring and default, which would effectively prevent it from accepting Greek bonds in exchange for cash transfers to Athens. And that is the reason for the current deadlock. As the Minister for Finance has said, even the worst possible solution is nonetheless a solution. In spite of everything, we can only hope for a pleasant surprise from Germany.