As debt negotiations stall, are we all Greeks now?


By Russell Bruce

The events of the weekend have exposed the flaws at the heart of Europe. The European Central Bank (ECB) is supposed to be independent and work to provide stability throughout all parts of the Eurozone.

According to the famous American economist Paul Krugman, the 18 other Eurozone countries gave Greece an ultimatum that it knew the Syriza led government could not accept. So did they not therefore anticipate the consequences? There has been much talk of forcing a change of government. If a new election was forced and Tsipras resigned, any new government could be a bigger unknown.

Events, dear boy! Events!

Alexis Tsipras
Alexis Tsipras

The Greek Prime Minister Alexis Tsipras has emphasised democracy is the victim in all this, and he is right. If the Troika and European leaders think they would be better dealing with a new version of the last government they need to remember that Antonis Samaras, leader of New Democracy, failed to deliver the reforms he signed up for. Wishing and engineering a change of government in another EU country is not only undemocratic (how understated is that?) – it is wilful and destabilising.

The ECB has kept support to Greek banks in place until Tuesday rather than draw the plug at the weekend. The finance ministers of the other 18 countries excluded Yanis Varoufakis (their Greek counterpart) from their subsequent discussions and refused an extension to cover the period up until the referendum. That is a decision that should have been made by the ECB and one likely to have produced a different outcome. Effectively an informal meeting of finance minsters quashed the ECB’s ability to keep its Emergency Liquidity Assistance (ELA) running until the referendum was held, as Varoufakis had reasonably requested.

Varoufakis complained that there was no basis for his exclusion. The European Commission argued it was an informal meeting and there were no rules preventing him being excluded. As an informal grouping it should not have been able to make a decision seriously affecting another Eurozone member whose finance minster was sent out of the room. They might be able to formulate an opinion, but effectively making a decision was beyond their remit, assuming they had a remit in the first place.

Has Merkel lost her famous ability to be pragmatic?

Angela Merkel
Angela Merkel

Was Tsipras misled on a European desire to find an accommodation? According to reports, Francois Hollande, Italian Prime Minister, Matteo Renzi, and even the US State Department told him a deal was possible. When presented with a take it or leave it ultimatum, Tsipras was left with no alternative but to walk away.

I am inclined to think Merkel was not able to exercise her natural pragmatism because she could not obtain enough, or any, support to keep the negotiations on track to a solution. The Greeks had already moved beyond the point for which Tsipras believed, his government had a democratic mandate.

On Sunday European pragmatism died and idiocy ruled. The assertions that Greece was a small economy and the rest of Europe would not be affected by this course of events would be shown for the fallacy it was. Within hours, markets in Asia were selling Euros and the Australian stock market had $35 billion wiped from its value. If recovery for Greece is a distant prospect, the pace of European recovery is so slow it does not take much to knock it off course.

Looking down on smaller countries

Large countries and stronger economies, relatively, are inclined to suffer from the ‘we will be OK syndrome’. Collectively the EU is the largest market globally. Greece is, and will remain, important to Europe. The world has seen European collective responsibility exposed in a way that could yet take us back to dramatic and cataclysmic consequences not seen since the first half of the twentieth century, unless there is a return to pragmatic solutions and resumed discussions. Alexis Tsipras has held out an olive branch with his letter to the heads fellow Eurozone governments.

The serious condition of the Greek economy cannot be ignored nor can the failure of past Greek governments to introduce efficient tax collection. European leaders were right to be suspicious that a Tsipras government might not be any more successful than its predecessors, but they were wrong not to have given the Syriza government a chance. The deal that wasn’t, was only for a five month respite. Greek recovery was, and is, a long haul operation.

The Greek anti-austerity party Syria swept to power on a promise that it would negotiate Greek debt
The Greek anti-austerity party Syria swept to power on a promise that it would negotiate Greek debt

Markets are ruthless when they sense weakness, and the Eurozone has shown division and weakness. It is generally pointed out that countries with their own currency are in a stronger position and have the ability to manage money supply and exchange rates. Countries that are economically aligned are able to share a currency reasonably successfully. The economies of the Eurozone are not aligned. Nevertheless the stronger economies gain from a more competitive exchange rate because of southern weakness.

Germany could not afford a return to the Deutschmark and gains by sharing a currency with less export-oriented countries. Countries outside the Euro are seeing their currencies strengthen. That is an issue for the UK with its huge current account deficit, as it is for Switzerland, Norway and EU members Denmark and Sweden, who all juggle bank rate to maintain a competitive exchange rate with Europe.

We live in an interconnected and interdependent world. Eighteen finance minsters forgot that and are reaping the consequences of a decision to hobble the ECB and ostracise Greece through the decision of an informal committee.

The ECB will set about buying the bonds of Eurozone countries and the cabal of 18 no doubt hoped that would prevent contagion to other weaker members of the Eurozone – Cyprus, Italy, Spain and Portugal. They are already guilty of wishful thinking. Markets have fallen around the world. Germany’s Xetra Dax has fallen 3.56%, Paris CAC 40 3.74%, FTSE 100 1.97% and Borsa Italiana MIB index by 5.17%. In an uncertain world uncertainty prevails. It could get much worse before the week is out.

Would we be better outside the EU?

That is a question many are now asking in the wake of events. The UK and its constituent parts, including Scotland are European countries. We are not in the Eurozone, although affected by these events, as are other European countries outside the Eurozone and others outside the EU.

Sympathy for Greece should not affect our traditional attitude that being part of Europe is positive. Gaining a say in the future direction of the EU is in Scotland’s best interest. Nobody has any idea what Cameron wants out of his renegotiation and he is unlikely to set this out, despite the demands of around a 100 of his own backbenchers to do so. Cameron’s obscure objectives, and certainly those of his backbenchers, are unlikely to coincide with a Scottish perspective.

Europe needs change. Perhaps recent errors will be addressed in the interests of all members, but that should only be the start of a process to instill a focus on fully democratic procedures. Scotland can only be instrumental in accomplishing that from inside the EU with a voice and a vote.

Greece remains a Eurozone country. There is no mechanism to exclude a member, even if that was the intention of the other Eurozone finance ministers.

Scotland does not have a vote, but it has a voice. Let it be heard. Scotland has elected politicians more than capable of urging an accommodation with Greece and a move away from this destabilisation of Europe that plunges a sword into the heart of the European ideal, recently undermined by the foolish action of the cabal of 18.