The Blog

Enough Greek Tragedy

How Aeschylus would have loved it. No, not the details of course - quantitative easing was not really a hot topic in ancient Athens-but the sheer inevitability, the procession of cause and effect which has led to the debt crisis in Greece...

How Aeschylus would have loved it. No, not the details of course - quantitative easing was not really a hot topic in ancient Athens-but the sheer inevitability, the procession of cause and effect which has led to the debt crisis in Greece. After all, his own series of Greek tragedies centre on an inescapable series of consequences, visiting the sins of the parents on the children as each generation pays its price in a chain which can be traced back to the original fault. From the day on which the first link is forged all are doomed.

In these less dramatic times the slide to disaster starts more gently. There was no struggle between brothers for a throne, no cooked children being surreptitiously fed to their father; just that meeting of ambition and greed which used to spawn such events and which still, in the 21st century, leads to weak decisions and terrible mistakes. Go back then to 2001 and the decision that Greece should join the Euro. At the time it seemed that the gods were smiling and that all the interests were aligned. The Eurozone was keen to develop critical mass. Greece was anxious to participate in the prosperity being generated further north. It was "win-win" and the doubters who questioned whether tests were really being met or whether the Greek economy was sufficiently aligned with the economies of the Eurozone to withstand financial shocks were hastily pushed aside. After all, boom and bust had been abolished so the question of how the structure would react to recession would never be tested. Only a party pooper would stand on the way of Brussels's dreams of glory or Greece's lust for easy money.

It seems such a long time ago. For years now the wretched Greeks have been on the rack as austerity measures have cut deep into their economy, suppressing activity so much that the critical ratio of debt to GDP is now an unsustainable 174%. "Reform," demands Europe, "reduce the public sector and make people pay taxes". It may be that the new Syriza government will make progress on the tax front, although unwinding a culture of tax evasion is a slow business, but how do you reduce the state sector when you already have record levels of unemployment, when children are short of food, when people are desperate? Little wonder that the voters have turned to parties which will stand against austerity. Little wonder that Greece's membership of the Eurozone is in jeopardy.

So much has happened recently that it is easy to pick on steps in the process as being the cause of the present disaster. Why didn't the European Central Bank bring in quantitative easing earlier? Why didn't the Greeks reform their tax system? Which question you ask depends on where you wish to put the blame but let's not get distracted from the root cause, that fateful decision back in 2001. Whose fault was it that Greece was allowed into the Euro before its economy was sufficiently aligned or was it no one's fault at all, merely an inevitable consequence of one party wanting to see a single currency throughout Europe and the other seeing an opportunity which seemed too good to turn away?

We read about mis selling in the financial sector often enough, the Ponzi schemes, the risky investments, the get rich quickly schemes that offer too good a return, and we "tut tut" about how easily people are taken in, commenting rather smugly over our coffee that, "If it looks too good to be true, it probably is". No doubt that is what the Greeks should have thought back in 2001 but how difficult it would have been for their government to turn down Eurozone membership. After all, the accepted wisdom was that all would be well and in democratic countries governments which are seen to reject once in a lifetime opportunities are soon replaced. Perhaps then more blame attaches to those who made the offer. Like those who mis sold pension products they put too much stress on the prospect of gain and not enough on the downside. It is true of course true that they were selling to a government and not to the public but the difficulties which that government would have had in rejecting the offer destroys any illusion that this was a deal between parties of equal strength.

When financial regulators come across mis sold products they are quick to order compensation to those who were misled. Should the other members of the Eurozone compensate Greece? Well, maybe, but it is unlikely to happen. Regulators who award compensation are giving away other people's money. It is quite a different matter to decide to give away your own. No, either Greece will have to sign up to a new austerity package which both sides can present as a victory or Greece will ultimately abandon the Euro and it is if that happens that the real nature of the EU will be revealed by how it deals with the position.

A successful Greek return to the drachma would shake the stability of the zone generally. In the cafes of Italy, Spain and Portugal they will ask: "If them, then why not us?" How much easier for those who wish to prevent further exits if the Greeks are seen to suffer. Looked at in that way it is in the interests of the European Commission to make the exit as difficult as possible. And yet there is another angle. To end up with a club whose membership is preserved by fear would be a sad end to a joint enterprise between free nations. Far better that generous help be given to those who wish to leave and that those who stay do so because they find it attractive. That surely is how it should be and whether it is or is not will be a sure pointer to the nature of the whole European project.