08/07/2015
The failed state that is
Greece has been given five days to sort itself out. Inability to find an agreement by then "may lead to the bankruptcy of Greece and the insolvency of its banking system", says Donald Tusk. And, according to "European officials", it could catapult Greece outside the common currency. "We have a Grexit scenario prepared in detail", says Juncker.
And this is after new Greek finance minister Euklides Tsakalotos (pictured), led by a smirking Alexis Tsipras, turned up
in Brussels with his hands empty.
One can feel irritation of the "colleagues" as they are forced to expend so much time and energy on a nation which represents less than two percent of the eurozone economy. But, amid all the media hyperventilation, what I found surprising was a remarkably robust leader in
The Times which was very far from supportive of Tsipras. His government, it said, "has destroyed its credibility with its allies. Tragically, it is doing the same to the economy and financial system".
Its record of mismanagement and demagoguery, we are told, "is a perversely remarkable one for a government that has held office for just six months. Syriza holds that the laws of arithmetic can be superseded by a sufficiency of revolutionary ardour. Greek voters will find out soon enough that this is untrue". It continues:
Greece is in this plight because, when its interest rates fell sharply on accession to the euro, it borrowed and spent profligately. When it was revealed in 2009 that it had done so on the basis of bogus figures for the public finances, market confidence collapsed. Greece at this time had a budget deficit of around 15 percent of GDP and a current account deficit of some 10 percent.
Eurozone policymakers met this crisis with impeachable complacency. They should have cut interest rates and flooded the economy with liquidity, to stimulate growth. They should have committed the ECB to being the lender of last resort. They ought to have moved much quicker than they did to restructure Greece's debts.
The crisis, it says,
⦠was born of Greek mistakes. Even total debt forgiveness would not have remedied these weaknesses. Nor would it now. Greece's costs are too high and its economy needs structural reforms in tax collection, labour markets, VAT and the public sector payroll. It needs a productive export sector so that it can pay its way.
The Syriza government has shown woeful unseriousness in addressing these issues. Instead, it has alienated every last ally in the eurozone with fanciful proposals and inflammatory rhetoric ("financial terrorism" was the parting shot of the departing finance minister, Yanis Varoufakis).
The disaster engulfing Greece is not due to the discipline of a single currency or to budgetary cuts, the paper then goes on to say. "It is entirely due to Mr Tsipras's scheme to declare a flawed referendum â on a Eurogroup proposal that does not any longer exist â that a bank run is now in train in Greece. His government will find that it is easier to shut banks and impose capital controls than it is to open and lift them".
Tsipras has tipped the economy back into a bitter and totally unnecessary recession, and ensured that the banks cannot reopen without recapitalisation. Yet, despite this appalling record, Tsipras appears to have assumed that the risk of financial contagion gave him a trump card in negotiations.
In fact â as could have been predicted - markets have largely shrugged off the referendum result. Germany has in the meantime indicated that no further debt relief, but only humanitarian aid, is on the table for discussion. A radical populist government in Athens has brought a proud nation low, while its allies can do little more than watch.
And that, indeed, is robust. It also makes a welcome change from the hysteria. Whether or not some hold that Greece is the victim of a heartless EU, the fact is that one needs to look to Athens for the proximate cause of this particular crisis.
