Delaying the fall of the Euro Zone

World markets have risen this morning on news that The New Democracy party has beaten the radical left Syriza party in yesterday’s Greek election. This is an irrational response because further delay in sorting out the euro crisis will make the euro zone’s problems worse, not better.

The New Democracy party have promised to the country’s creditors that it will honour the terms of the bailout loans to keep Greece inside the euro zone; hence the positive reaction by the markets. If the Syriza party had won and carried out its promise to the Greek electorate to tear up the loan agreement, this would almost certainly have meant a rapid exit from the euro.

Stepping back from the immediate political turmoil, it is clear that Greece cannot remain inside the euro zone. This view is based on economic, political and social grounds; it is simply not sustainable. To leave the euro is the correct course of action, primarily for the Greek people but also for Europe and the world economy. A bankrupt Greece would default on its debts and start anew. The new Drachma would plummet in value against the euro and other currencies. Greeks would find imports were unaffordable. Other Europeans would find that Greece is an extremely good value holiday destination. They would and flock to book their next vacation and dash to buy holiday property which would be exceedingly cheap to foreigners. Greece inside the EU but outside the euro zone could do very well without losing its identity and retain its rather loose definition of fiscal discipline. The Greeks could return to a currency which tended to continually depreciate to counter the Greek way of running the economy. It is not the way the Germans run their economy but each country should build on its strengths and work around its limitations.

Sustainable economies are built around the resources that each country has and take into account the specific circumstances of a nation. This is the policy of ‘proximisation’[1] which will lead the world economy out of the current crisis. At the tail end of the era of economic globalisation, people are slow to accept this major paradigm shift, but change is coming, and it is change for the better.
Will the change in policy come soon enough to allow a controlled resolution of the euro crisis? Two years ago, or even one year ago, it would have been possible for Greece to leave the euro in a controlled manner and for the other members of the euro zone to hold the currency union together. Even now, it could be argued that if Greece left without further delay and Germany accepted joint euro bonds, Spain and Italy could be protected. But the longer the Greece departure is delayed the more likely that the euro zone will splinter apart.

The politicians squabble and try to hold the euro project together – and thus ensure its break up. A currency union of separate sovereign states was never going to be sustainable. The sooner a more stable economic system is established in Europe the better for everyone. Keeping the euro intact ensures that all euro zone countries stand or fall together. When the fall comes it will be far more painful than it needs to be.

[1] Also spelt ‘proximization;’ term introduced in Adapt and Thrive: the Sustainable Revolution, McManners 2008.