A Greek Tragedy

An agreement for a financial rescue package for Greece has finally been brokered. Any further delay and Greece may have been forced to default on paying out on bonds due to mature in the near future. For a Euro-zone country to default on its national debt is unthinkable – or so we thought. This is an important stage in the development of the Euro. Is it a stable well run currency vying with the US dollar for reserve status; or is does it represent an unwieldy merger of disparate economies that is bound to unravel? These are important questions for Europe; and for the stability of global finance.

Discussions have been slow and tortuous. The internal politics of Greece has made it very difficult to agree to implement the tough austerity measures demanded by the IMF and the EU. For Germany – providing a large chunk of EU new loans – this is a bitter pill to swallow. The Germans take pride in running a prudent economic policy and ordinary Germans have had to put up with belt-tightening. To see this result in bailing out the profligate Greek economy is galling; Angela Merkel may reap a political backlash in the coming elections.

This whole sorry tale of Greece and the Euro is a Greek tragedy. It will end with Greece leaving the Euro. After this agreement the inevitable is delayed but not for as long as people might hope. As soon as it becomes clear that the Greek government does not have the domestic support to implement the full austerity package (nor the stomach to get a grip of tax evasion), and the EU looks likely to reject further requests for yet more loans, there will be a rush to dump Greek Euro debt and to withdraw funds from euro accounts in Greek banks. The final act could be messy and dramatic.

I write in my book, Green Outcomes in the Real World, coming out in the autumn:

‘There is little prospect that the euro will be dismantled any time soon, but it is likely that one or more members will explore the possibility of exit to regain greater financial control. Implementation would be a challenge for both the country and the European Central Bank, but once one country had acted as trailblazer, others might follow.’

Greece and the European Central Bank should have trail-blazed an orderly exit at a much earlier stage. Further delay is dangerous.