Leading article

Greece should remember the lesson of Black Wednesday

Leaving the euro will be scary, but it’s the only chance of making a full recovery

20 June 2015

9:00 AM

20 June 2015

9:00 AM

The campaign to keep Greece in the euro has resulted in five years of groundhog days. The unfortunate country seems to be forever approaching a day of repayments it cannot afford. Ministers and diplomats assemble to thrash out a deal. Meetings collapse in bad temper, and markets sink. Then, at the eleventh hour, a deal is somehow forged. Greece agrees to reforms which seek to cut spending and balance the books in return for billions of pounds of bailout cash. Markets rebound. The money is paid, the debt repayments met. And then all starts to go wrong again. A few months later we are back where we began.

Anyone who hoped the election of Greece’s Syriza government in January would break the cycle has been disappointed. All that has happened is that tempers have worsened as the unpayable bills have grown larger. The new Prime Minister, Alexis Tsipras, this week rounded on Greece’s creditors, accusing them of somehow ‘pillaging’ the country in their expectations of repayment. He has used his election victory to claim a mandate for a path of ‘anti-austerity’ — i.e. bigger bailouts and weaker conditions. But while he can claim a mandate from his own electorate, he has none from the Germans, the French, nor any other country whose people are paying the bills.

Mr Tsipras is right that the past five years have been a disaster for the Greek economy. It has shrunk by a quarter. Unemployment stands at 27 per cent. The bailout cash — €240 billion to date — has yielded an even more miserable return than the aid lavished on kleptomaniac regimes in developing countries over the past few decades. Greece’s military spending, however, puts Britain to shame: it seems to have no problem with spending more than 2 per cent of its economic output on the armed forces. Tsipras may like to confront the Germans, but he appears to know better than to antagonise his country’s colonels.

It’s clear how Tsipras hangs on to power, but not so clear why the eurozone wants to hang on to Greece. If eurozone leaders had not invested so much in the survival of the single currency grand projet, they would long ago have started asking the unaskable: would it really be such a bad thing if Greece’s membership of the euro ended? If the drachma were brought back, its value would plunge; then Greek goods and services would become cheap on world markets. Greek holidays would become deliciously good value. This is the purpose of a country having its own currency: it’s the most powerful tool to ensure recovery after a crash.

As Britain knows. In 1992 we were deep in recession, and much political energy was unwisely expended in trying to remain in a currency straitjacket that was making matters worse. At the time, all conventional wisdom insisted that Britain must stay in the so-called Exchange Rate Mechanism, a precursor to the euro. (The Spectator had been the only publication urging the Conservatives to keep out of the ERM.)

When the inevitable happened on Black Wednesday and Britain crashed out of the ERM, it was viewed as a day of national humiliation. But our long and bountiful economic recovery started then — which is why so many economists now refer to it as ‘White Wednesday’. This is what Greece now needs.

The short-term consequences would of course be painful. Greeks who have not moved their savings offshore would see their value plummet. Investors in Greek government debt would suffer defaults, yet the assertion that the German government is only propping up Greece for fear of its own banks going bust is not true. According to JP Morgan, Germany’s two main commercial banks, Commerzbank and Deutsche Bank, have exposure to Greek debt of €400 million and €298 million: containable losses even if the whole lot were wiped out.

However damaged, the Greek economy would finally be in a situation from which it could recover. Of course Greece would only be rejected from the eurozone, not the EU; it would retain all the benefits of the single market, and would be in a better position to exploit them.

Currency unions do not work unless there is full political and economic union. Were Greek and German taxes to be aligned, equally rigorous budgets imposed in each country, and the same approach to corruption and enforcement of tax law to be adopted, then maybe the two countries could function on a single currency. But the Greeks would like the imposition of German financial and legislative discipline even less than they like the bailout conditions being placed upon them now.

So great is the euro-hubris that the Greek experiment is destined to be repeated elsewhere, as other member states find themselves out of kilter with Germany, the dominant eurozone economy. The beauty of Europe lies in its diversity: it’s hard to think of any group of developed countries that have less in common with each other. Still, the eurozone lacks people who are prepared to admit that the whole single currency experiment has been a ghastly mistake. Until they are heard, Europe is destined to suffer a long series of repetitive crises.


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  • Atticus

    A good article. What strikes me as apparent is the fact that the Greeks have essentially lost their self belief to be masters of their own fate: too many still look to the Euro as some sort of saviour instead of seeing it as the reason for their inability to get back on their feet.

    The political ideology of the EU has laid waste to millions of lives across the continent, and I wish to have no further part in it. It’s time for Britain to lead the way out of the EU straightjacket.

    • Purple Commoner

      Greece is a perfect example of trickle down economics not working.

      • James

        Trickle down economics is a leftist fantasy which has never existed except in leftie attempts to debunk it.

  • mrsjosephinehydehartley

    I suppose it’s not beyond the remit of technicalities to cope with both a real Greece and a packaged Euro version. people go on all inclusive packag holidays all the time and indeed many workers end up doing what they do in other nations whilst packaged up in a similar way, it seems to me.

    Angela this morning has reportedly resorted to her pet manra” where there’s a will there’s a way” .Somebody wants to point out the bigger one ie ” where there’s life, there’s hope” I think, the point being that Greek persons are living breathing humans and as such any Christian must do what God wants us, the living, to do at all times ie be merciful, as
    he is merciful.

    All greece needs to do , I think is scrap the credit/futures nonsense and let the rest of Europe help carry the real burden of the real benefits ie proper pensions & child benefits.

  • David Booth.

    The EU is largely to blame for the situation Greece is in. The political elite colluded with the then Greek Government to distort the Greek financial situation in order to ease them into the Euro. It’s as if a gang of people go on an expensive holiday and persuade a poorer friend he can go also. Then when the poor friend runs into financial difficulties the group resent having to bail him out.
    I’m not saying Greece has no responsibility in this matter but the rest of the EU bear a greater responsibility in that the political elite of the EU dishonestly enabled Greece to join the Euro.

  • Perseus Slade

    Greece can hardly ever pay back all it owes.
    So it has to default, and more fool the lenders.

    • Gweedo

      Yes. Greece should get on with it and “do an Argentina”: default and aggressively renegotiate the national debt down to a manageable level. It’s the only way out…as long as you don’t mind being an international financial pariah.

      • sidor

        Argentina had a very similar problem: fixed overvalued exchange rate which resulted in big debt. After default and drastic currency devaluation its GDP have been growing by annual 7%. I guess many Eurozone countries wouldn’t mind be that kind of pariah.

        • Gweedo

          True, but I wonder if a 7% growth rate be achievable for Greece after euro exit. They don’t have oil and soya like Argentina does. And last I heard Argentina wasn’t faring too well.

  • Over many years I drove from England to Greece through every single country having its own currency. The nations were prosperous and the roads well maintained.

    With the Drachma, the shops were full of buying customers and the roads in Athens full of new cars. No flat pack furniture, but fully put together solid homeware in abundance. All now gone.

    The first day of the Euro was this. A bottle of water had been 50 Lepta (half a Drachma). It became 50 cents (half a Euro). That first day 1 Euro was worth 326 Drachma. You do the math of the hyper-inflation that was.

    The EU destroyed capitalism in Greece. And did it throughout southern and eastern Europe. And will destroy business and jobs in the Ukraine.

    The IMF demand nil public spending everywhere.

    But money in benefits and pensions is money ALL SPENT by people back into the local community and therefore back through government.

    The world seems to think the poor of all ages are a bottomless pit of a black hole for money. This cannot be so, as money is spent.

    The only black hole of bottomless pit for funding are politicians and their expenses, who cost hundreds of millions in lavish lifestyle. This is the UK today.

    Leave the poor of all ages to starve, enslave them in worfare destroying jobs and then morally thieve their state pension. Whilst having a pay rise more than anybody’s benefit or state pension, on top of all those millions in expenses they get.


  • jim

    Of course they should leave.They’ll be fine.But none of that bailout money went to Greece.It is all going to the eurobanks.

    • WFB56

      Right, so none of it went into non-contributory pensions, excessive government employment, graft, grandiose projects – like the Olympics – or a myriad of other Greek pockets.

      You can keep telling yourself that, but it still won’t make it true.

      • jim

        Not an opinion.A fact.Of course the Greek state is corrupt but the so called bailout money never reaches Greeks.It is rolled over immediately and goes straight into the coffers of eurobanks.A fact.Same as in Ireland.That doesn’t change the ridiculous fact that Greeks retire at 62 and some in their fifties.On the other hand these people are not on big pensions.The bills are so vast because there are so many of them.Greece is corrupt.No mistake. But this bailout money does not go to Greece.It goes to the eurobanks who bankrolled all of this pension idiocy..and the rest of it.

      • Actually, it doesn’t go to pensions. The Greeks raise enough in taxation to cover all government expenditure – a current account surplus. Bailout funds are required, ironically, to pay for debt repayments from the past.

        • WFB56

          Wrong, their pension costs come from their revenue accounts, they don’t have fully funded investments generating the pension payments.
          The whole notion of a “primary surplus” is ridiculous. Its like saying I can meet all my payments today as long as you don’t count my car repayments and mortgage payments.

  • Hamburger

    The question of losses from German banks has been solved by the transfer of the Greek bonds to the ECB. The main reason why we did not want Greece to leave the Euro five years ago was to save our banks. They have been saved but our politicians are conservative.

  • Callipygian

    Currency unions do not work unless there is full political and economic union
    — which is neither desirable nor possible, though it does show what the EU project is really about, and why Britain should just get out of the whole dang thing, instanter.

  • e2toe4

    The worry for the EU/EZ *Projects* isn’t the Greeks will leave the Euro and have a disastrous two years and maybe there will be financial contagion…its after that as their country siphons of holidaymakers from Spain and Italy, and France…and then their economy begins to recover and grow.

    That’s when the Portugals, Spains, French and Italians etc will start to wonder whether being stuck in the strong currency is worth it for them.

  • Bonkim

    Commonsense is lost on the Greeks – the Southern Europeans jumped on the Euro-bandwagon assuming they will get free lunches all the way. Good Britain did not join in or would have been skinned.

  • global city

    “Currency unions do not work unless there is full political and economic union”

    Why this is not explained when Europhiles still qualify their statemements that they think the UK should not currently join the Euro, holding onto to the possibility of the UK one day joining the Euro always depresses me.

    It is one of the most illuminating points Eurosceptics can use to expose how Europhiles are fully behind the political elements of the EU project. A good entry point into the vital issues that need to be opened out and fully discussed, but eurosceptics never go there!

  • Roger Hudson

    As ‘full political and economic union’ , across the whole enlarged EU is the intention of the euro-‘elite’ the whole farce will have to go on and on.
    It is Monday and the ‘form of words’, the con, is being constructed, markets rejoice and the whole sorry saga goes on.