Eurosceptic journalist Peter Oborne surpassed himself on Newsnight on Wednesday denouncing a spokesperson for the European Commission as “that idiot in Brussels”. The question at issue was whether the euro might survive and, if so, whether Greece might remain a member. To Peter Oborne, the answers are obvious. This blog is not so sure.
There are good reasons for doubting the way in which the EU governments are dealing with this issue: simply look at the timetable this week. President Barroso proposes on Wednesday in his State of the Union address that the EU should issue eurobonds and move towards more supranationalism in the institutions that govern the euro. On Thursday, the German parliament votes to approve a plan to increase the financial support available to Greece, but this is not a vote about what President Barroso was talking about but rather a vote on a plan agreed by the heads of government in the spring. Even before that spring decision is in force, discussion has had to move on to what next. It is like a long-distance race in the Olympic stadium where the faster runners are catching up and overtaking the slower runners who are still completing previous laps.
But if the timetable is slow and worrying, the substance is not. If European countries are assailed by the high cost of services their debts, measures to reduce the interest rate they pay are worthwhile. That this involves some form of debt-pooling should be no surprise: European countries are increasingly interdependent in financial and economic terms and the emergence of interdependence in debt follows naturally from this.
The design of the shared debt system must not encourage profligacy, of course, and the collective decision-making it implies must be democratic, but those two points are also proposed by President Barroso.
Now, it is not certain that these proposals will be welcomed by the member states, or that if welcomed they will be agreed and implemented in time, but they might be. It is not obvious that the euro will fail, despite what Peter Oborne believes.
The second question is about Greece. If the eurozone survives, will Greece remain a member? Historical parallels of currency unions coming apart and sovereign debt defaults are frequently quoted, but the euro is in one crucial respect different from any currency union that has ever preceded it. It is the first currency union of the internet age, and that makes a lot of difference.
Some economists offer the prospect that Greece can follow the “normal” route to sovereign default, renouncing its debts and devaluing its currency so that its domestic costs can fall to competitive levels. To devalue its currency means, of course, to leave the euro, and that would be rather harder than has been recognised. The euro has been complemented by a single payments area, in which it is possible to move money freely from one member state to another, not merely legally but technologically. The legal freedom to move money could readily be reversed by a law or executive decision announced one Friday night: the technological freedom to do so would be much harder to restrict.
There would be a need to prevent money moving freely out of Greece if money that remained in the country was to be devalued. Without that obstacle, every liquid asset would go abroad, every Greek bank would collapse, and Greece would have no economy worth speaking of. In former times, capital controls and bank holidays might be used to stop people moving money. A similar process today would require the closure of every cashpoint machine, every chip and pin payment system, every online bank account, every credit card, every automated transfer. And of course, this would all have to happen instantly, with no warning – if there were a warning or any hint that this might happen, all the money would already have fled by the time it did.
Another report on that same Newsnight broadcast on Wednesday reported from Greece on the sense of despair spreading through the population: almost every social class and almost every age group has had its expectations and assumptions about life turned upside down by the current crisis. Something must be done to change this, was the heavy overtone, if society in Greece is to be saved.
But imagine the consequences of an attempt to leave the euro, if there was a serious attempt to prevent money from leaving the country. Greece would be returned to a cash economy. How bad would that be? Here’s a simple test.
How much money do you, the reader of this blog, have available in cash right this moment? Could you feed yourself and your family on that? Could you fill the tank of your car with petrol? How long before you run financially, or literally, dry? Greece leaving the euro would do this to 10 million people. And we think that the current impact on Greek society is bad.
And such an experience would not be confined only to Greece. People in other eurozone countries afflicted by austerity might fear the same result and move their money abroad to safer havens. Collapse in Greece would be followed in Portugal and elsewhere. This is not a problem that can be confined to one country.
Of course, that Newsnight report was not wrong in that Greece is finding austerity unbearable. That is why thoughts are turning to how Greece can default, within the euro. Not a disorderly repudiation of all debt, but an agreed writedown of some debt as part of an overall package of reforms. Think of it more as a voluntary arrangement than as bankruptcy.
But even if there is a route to easing the problem of Greece while also saving the eurozone as a whole, there is no guarantee that such a route will be followed. There are 17 member states in the euro, each one of which would have to give some form of agreement to whatever is proposed. In any of them, there might be a reason why the likely solution cannot be accepted.
Perhaps it turns out to be because of an ideological attachment to what some people think of as national sovereignty, maybe there is an ideological desire to punish reckless debtors, possibly there is a political crisis for an entirely unconnected reason that nevertheless holds up any decision-making. A political system that requires unanimous and timely agreement within 17 different countries is going to be vulnerable.
But if there is no guarantee that things will work, it is also true that that there is no guarantee that things will fail. The consequences of failure to save Greece, or to save the euro, are so severe that, surely, the national governments will make an effort to succeed. Even the British government, in the person of Eurosceptic Chancellor of the Exchequer George Osborne, is urging that whatever steps are necessary, are taken.
Peter Oborne’s certainty that Greece is doomed is misplaced. It might turn out that way, but it is far from certain. And if Greece can agree a partial default within the euro, along the lines and for the reasons set out above, it is not the Commission spokesperson that will be looking the idiot.