So now we know how countries in the Eurozone fail. It is not when debts become unpayable (for all practical purposes, Greece’s debts have been unpayable for years). It is not when the economy crashes (Greece has endured a 6 year depression which has seen GDP fall by 25%). It is not when the politicians agree to disagree, or more importantly fail to agree at all (that has been the case between Greece and its partners for months, ever since the Syriza government was elected at the start of this year). Nor is it even when the government formally defaults on an obligation (which Greece has not yet done, though the likelihood of it doing so on Tuesday, when the next of its debt repayment instalments is due to the IMF, is very high).
No, in the Eurozone, the moment you know the game is up is when the ECB refuses to go on extending cash to your banks. It is money from the ECB that has kept the Greek banking system alive for the last few months, and when earlier today (Sunday), they announced that there was “no more money”, that they would not extend fresh loans to the Greek banks on Monday, the Greek government had no alternative but to close the banks and prepare for capital controls. And, in all likelihood, prepare for an exit from the euro altogether and the introduction of a new national currency.
It is worth reflecting on this for a moment. The ECB is an unelected agency. Its officials are technocrats not politicians, and are not answerable to any electorate (and certainly not Greece’s). Such bodies do not usually take decisions that alter the lives of nations. But it has been forced to act because of the complete failure of the political class – both the Greek leadership and the Eurozone – to solve what is in the grand scheme of things a well‑understood problem affecting a small and relatively minor member state.
Given that we have ended up with the outcome that nobody wanted – financial chaos in Greece, the likelihood of a Greek exit from the euro, massive financial losses for the IMF, the ECB and the taxpayers of the Eurozone, not to mention a political disaster for the monetary union which was meant to be permanent and unbreakable – one is forced to ask how we have reached this point.
On the surface, one can talk of Greek intransigence, and Eurozone patience being exhausted both by the lack of substance in Syriza’s proposals and by their negotiating style (which almost seemed designed to lose friends and alienate people). Equally, one can talk of the unbending, indeed many would say unthinking, determination from the Eurozone to impose yet more austerity on Greece in a vain attempt to balance the books, regardless of the fact that the only results of the 6 years of austerity already imposed has been to destroy the Greek economy and impoverish the Greek people.
It is hard to understand why the Eurozone leaders thought that, given the result of the austerity so far, more austerity would be just the thing to break the vicious circle – as Einstein said, “doing the same thing over and over again and expecting different results is the definition of insanity”.
But if one looks beneath the surface, beneath the public positions, it becomes a little clearer perhaps what has caused the failure. For each side has had a hidden agenda which has driven their overt agenda but which could not be brought into the discussions.
In the Eurozone’s case, the hidden agenda has been first to postpone the crystallisation of huge losses, which they have privately accepted will have to be admitted eventually but which will cause major discomfort for the politicians as they face infuriated electorates; second to avoid a recrimination with the IMF and their biggest two non‑European financiers, the US and Japan, neither of which are remotely pleased to see the IMF’s largest ever default or their share of the resulting losses; and third to continue the fiction that the euro is irreversible.
In Greece’s case, the hidden agenda has been that the elite still have no appetite for building a modern, honest democracy and want to continue the clientelist state for as long as possible.
The first hidden agenda is revealing for what is not contained in it. Whatever they may say, the long term success or otherwise of Greece as a country is largely immaterial to the other leaders, save only that they don’t want a mess on their watch. Indeed, cynically, even if they say they want Greece to succeed, it is clear that they do not want the present Greek Government to succeed, to avoid encouraging other austerity-refuseniks like Spain’s Podemos or France’s Front National.
The second hidden agenda is revealing because it shows that the Greek establishment is still in denial. And what the last few months of discussions between Greece and its partners have shown is that finally the lenders understand this, and they have (very publicly in the case of the IMF) given up on the attempt to change it.
So, Tsipras has it seems got his wish. He is now more in control of the Greek economy, and in theory more able to fulfil his promise to his electorate to lift the burden of austerity. He will make statements claiming that to have gone on endlessly extending the bailout would be to have gone on endlessly extending the Greek people’s misery, with no realistic prospect of ever getting out of the austerity trap. He may even draw analogies such as chronic toothache, and observe that sometimes it is better to forego the painkillers and go to the dentist to resolve the matter once and for all, even if the immediate result is greater pain.
But Tsipras, and Greece, need to be careful. Their own currency and the freedom to devalue do indeed offer Greece a fresh start, and as the UK showed after sterling was ejected from the ERM in 1992, devaluation can lead to economic recovery and prosperity. But it is not automatic, and it requires prudent government and tight fiscal controls, not to mention better tax collecting and an end to corrupt practices.
In the end, Greece’s prosperity does not depend on being inside or outside the euro, it depends on honest government, a competent tax system and hard work from the Greek people to make their economy competitive. If by the time the Syriza government’s term expires in 2019 Tsipras has delivered that, he will indeed be worthy of all the plaudits he will undoubtedly receive.
But if not, he may have cause to reflect on the famous comment by the Duke of Wellington, surveying the battlefield devastation at Waterloo 200 years ago this month, that “next to a battle lost, the greatest misery is a battle gained”.