Euro Tragedy For Greece
Yorkshire -- 29 June 2011
As protests continue in the streets of Athens, Timothy comments on the Greek bailout and the general economic situation in Europe and the Yorkshire Region.
The thoughts about Greece at the moment are not about historic or cultural sites or holidays to come but about the economic crisis that afflicts that nation - our TV screens are filled with news of protestors and public outcry in the streets of Athens and beyond. This was the birthplace of democracy after all. Over the past few weeks we have been debating and agonizing over what we should do about Greece. What should we do about the Euro zone? Who should pay? Should the Greek government listen to the protesters? How will this impact on countries like the UK that remain outside the Euro zone?
The role of the chorus in Greek tragedy is to tell the tale before the play itself begins to prove how unavoidable and inescapable the hero's tragic destiny will be. Those of us who felt that joining the Euro zone would have been a mistake for the UK also predicted possible tragedy if countries like Greece and Portugal joined the common currency by simply “squeaking in” to meet the criteria set for entry. It was of course wise then, and remains so today, that the UK kept out and continued to enjoy freedom to control its’ own economic and financial system.
It was, and is, my belief that even the premise of a Euro zone in such divergent economies would always be difficult. But I have always been of the view that there is no advantage to us in the UK – and in this Region, of the Euro failing. It is still in our interests for it to succeed as another major trading currency alongside Sterling. But as I said yesterday in a speech in the European Parliament, those who decided on the Euro zone's membership in the first place and those who decided how to enforce the Stability & Growth Pact, must now deal with the consequences of their decisions.
I welcomed the conclusions from the European Council which make it clear that those outside the Euro zone, who were naturally excluded from its decision-making process, must also now be excluded from paying for the consequences. From a solely EU point of view, there is no obligation on the UK to help the bail out other than through the International Monetary Fund (IMF) which is available to all World economies – not just European ones.
Irrespective of the EU bailout mechanism, or the decisions taken within the Euro zone, since the UK takes a full part in the IMF, we are therefore committed to taking a part of the share of the Greek bailout. The Prime Minister has indicated that our exposure, however, will be minimal, but we cannot avoid all the other implications of a failed economy in Greece. For a start, there is international exposure through the complicated but spider-like banking connections.
Today the Greek Parliament voted to adopt a package of public spending cuts, structural reforms and a carry out a massive €50 billion sell-off of state assets imposed by international lenders. Patience had already been in short supply, but if politicians had voted against the measures, I'm sure that loyal European support would have dried up faster than a tap during a hose pipe ban. The Helenic state would probably have sunk quietly into a sea of defaults and drachmas.
The Greek people feel hard done by, but when every country is tightening its belt shouldn't they have to as well?
There have been many times when peoples and governments in Europe have had to take tough economic decisions. In Germany, Ludwig Erhard made extremely difficult decisions post war in his role as Minister of the Economy, and he is renowned for building up monetary and financial recovery. Our new coalition government has now been forced to make severe austerity cuts due to the colossal over-spending of the previous Labour government. It might not be popular to make these cuts but it is necessary for our country's future; and to hear Ed Milliband criticize this is really a bit much!
Considering Greece’s poor growth prospects and increasing debt burden, it may well default again within the next few years, even if it gets some breathing space through a second bail-out. EU leaders should now be planning for how such a default could be managed in as orderly a manner possible alongside new structural plans from the Greek government itself – if it survives the current hurricane.
Greece should restructure its debt as soon as possible. Then an honest discussion needs to be had about whether the country can realistically stay inside the Euro zone in the longer term.
But there is another terrible danger: that we will get through the Euro zone crisis only to realise too late that we have failed to respond effectively to the wider underlying economic crisis: especially our increasingly poor performance in terms of investment, innovation, competitiveness, and productivity. Our “eye” has been taken off the ball.
We need strong action and reform so that we can build more of our own world-class businesses to deliver the long term wealth on which our way of life depends.
To take it back to the glories of ancient Greece, that oft-named cradle of civilisation, Socrates once said: 'I am a citizen, not of Athens, not of Greece, but the world.' In economic terms at least, we are too. If we are trying to cut back and build a better future here, our fellow Greek citizens will have to do the same.
Greece - the next steps:
- Tomorrow (Thursday 30 June) Greek parliamentarians will vote on the implementing measures for the programme, such as tax rises and the sale of state assets.
- Assuming the implementing measures are approved, the EU will sign off on the latest 12bn bail-out payment to Greece on 3 July.
- In mid July the IMF is likely to release further funds to pay off Greek debts.
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P.S. Congratulations to Christine Lagarde, who yesterday was appointed Head (Managing Director) of the International Monetary Fund. She has her work cut out, but I greatly admire her and I think she will prove an effective choice.
