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Wednesday, 19 October 2011

Three Days To Go

On Sunday last the US Treasury Secretary said that the leaders of the Eurozone - France and Germany - had 'six days to save the world'. That leaves today, Thursday and Friday before the European Summit meeting convenes.

Chancellor Merkel has said that they are approaching a solution 'millimetre by millimetre' with no hurry to move towards the reputed French ambition to draw upon Germany's assets and strong reputation in an effectively unlimited bail-out fund for the whole of the Eurozone, including Greece. Mrs Merkel knows that her electorate are furious at the extent to which their assets have already been committed for the resuscitation of the common currency; and the significant Turkish minority are not reluctant to stress the idle and exploitative reputation of the Greeks. Merkel's government would face an electoral massacre next year if she risks ruining all that has been achieved since the foundation of the Federal Republic in order to rescue olive farmers who have been subsidised by the Common Agricultural Policy for implausibly-large numbers of trees whose 'existence' the overpaid bureaucrats vouched-for during their ten-hours of weekly attendance in the office between coffee time and lunch. It does not matter how far this is an unfair caricature of Greece: it is the embedded image that rests in sufficient truth to be sustainable.

Nobody can tell whether or not a domino effect would happen if Greece was simply shoved out of the Eurozone and given modest assistance from the IMF and the EU to soften the landing that would nevertheless be very hard indeed. With Greece out, would global speculators put so much 'pressure' on Portugese, Spanish or Italian state finances that they might also be pushed out, one by one? The apprehension that this could be so is a major factor in the consideration of options that have to be made by the European  leaders this weekend: the negative prospect of a serial unravelling of the Eurozone, the European Union and the 'European Dream' is strongly canvassed.

But there is an alternative vision that should quickly get more exposure. This begins with the fact that the Greeks have been vastly more untruthful and self-indulgent than Italians, Portuguese or Spaniards. Those three far-from-spotless countries have adopted stringency programmes that must be pursued rigorously, and possibly extended as the rest of Europe's governments also cut their 'systemic' public indebtedness while they all take specific short-term measures to stimulate sufficient economic impetus to break the depressive trend that at present is threatening to descend into another Great Depression. Dumping Greece would give the three most exposed countries the necessary shock to ensure that they really implement the undertakings that they have given. The more hardship the Greeks experience outside the eurozone, the more evidence there would be to encourage their Mediterranean neighbours to stick with the discipline that will be necessary to consolidate the bodged and ill-founded common currency into a valid international medium of exchange. The expulsion of Greece can mark the rebirth of the Euro. That is a desirable objective: a thoroughly good thing.

But if Greece is 'rescued' and fails to meet the almost-certainly unattainable targets that will be necessary to remain in the eurozone, there will be a huge temptation in Italy and Spain to soft-pedal on their austerity programmes: then the dominoes will begin to fall and the Euro will either collapse altogether or become the local currency for a hard core of Germany, Austria and the 'northern' Eurozone states whom the Germans trust.

In summary, if the Greeks are evicted, the Euro can have a future. If Greece is 'rescued', the chances of its survival are massively reduced.

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