Greece Could Bring Europe to Its Knees

Edmund Conway Daily Telegraph February 11, 2010

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By Edmund Conway Published: 6:32AM GMT 11 Feb 2010

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The Greek crisis has brought the muddle of the euro to light Photo: EPA

Pigs are dispensable; or, at least, so says the Ministry of Defence, which yesterday owned up to detonating more than 100 of the poor sow-and-sows in its bid to improve the lot of soldiers blasted by roadside bombs in Iraq and Afghanistan. It is an enlightened attitude that cannot be said to be shared by our European neighbours, who were last night on the brink of endorsing the biggest pig-rescue mission in history.

Of course, in this case, the PIGS in question are not animals but countries – or, to be more precise, Portugal, Italy, Greece and Spain. In crisis talks in Brussels today, European leaders will discuss how to prevent Greece from imploding, and tipping its Mediterranean neighbours over the financial precipice. To the great horror of their more sensible Teutonic counterparts, these countries surfed on the tide of cheap credit provided by euro membership and generated a debt bubble so enormous that it threatens to take down their economies.

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Investors are terrified that those at the sharpest end – in particular, the Greeks – will fail to honour their debts, and are demanding an ever-higher interest rate from them. If such a rate is imposed, Greece could soon, like every debt recidivist, find itself so hopelessly mired in interest payments that it will no longer hope to escape from its debt. It may already be there.

So far, so familiar. Greece is not the first and will not be the last country to face fiscal oblivion during the crisis. But what sets Greece and its porcine neighbours apart from, for instance, this sceptred, indebted isle, is that they are part of the euro. Should one of them default, the very act could bring the entire currency down, plunging the w

By Edmund Conway Published: 6:32AM GMT 11 Feb 2010

Comments 51 | Comment on this article

Moreover, none of the usual escape hatches for such crises is available in this case. Usually, the options would be, in order of increasing desperation: first, promise to cut the deficit as soon as possible; second, allow your currency to depreciate as fast as possible; third, if all else fails, call in the International Monetary Fund for a bail-out.

Greece has already laid out an impeccable austerity budget to slash its deficit, but, for all its sincerity, investors are loath to take it seriously, given tax- avoidance has long been a Greek national sport. As if to confirm its worst fears, the country was more or less shut down yesterday by a public sector strike. A general strike is in the diary for the end of this month. And this before even the nastiest spending cuts have come into force.

So what about an IMF bail-out? This is the option that would make the most economic sense, and has been pushed hard by the UK, the US and the IMF itself. But here's where we leave logical economics behind and embark on what this really is – a political story.

Sensible as it is, an IMF bail-out is being resisted tooth and nail by Brussels, which understandably fears what that would imply: a clear signal that the euro project has failed, not to mention an opportunity for Washington to stick its nose into European economic management.

Which is more or less where we were last night. The European Commission is edging closer to a "solution" to the crisis. It may be done through the EC or, in slightly more ham-fisted fashion, by effectively passing a begging bowl round Germany, France and others. In time-honoured fashion, the discussions, which concern the fate of hundreds of millions of Europeans, are all going on behind closed doors.

The upshot is that, one way or another, the euro's richer members will finance Greece for at least a few months – on the strict proviso that it carries out the austerity measures it promises.

Sounds like a muddle? Correct, but for blame one must look to the euro's original architects, who made a concerted decision when creating the currency not to allow for eventualities like this. After all, to do so would have been to suggest that the project might fail. Quelle horreur!

But their refusal to see the economic logic – that in the end a currency union will fail unless there is some form of central economic government with fiscal powers – has left the European project facing its greatest test yet.

It was possible to sweep this uncomfortable truth underneath the carpet for the single currency's first decade, but now the full scale of the Greek crisis has brought it back on to the agenda. And appropriate as it is that Greece finds itself the Achilles' heel of the euro, it could easily have been one of a number of countries.

Even after the current mess is cleared up, the eurozone will find itself faced with an awkward question: does it admit that currency union was a mistake and dismantle it, or does it press on and create an effective European economic government to fill in the missing gap? To do nothing seems untenable.

Brussels, which of course has no reverse gear, is pushing for the latter. A few years ago, one would probably have assumed it would succeed. Today, the consensus behind ever-closer integration is disintegrating. The European project was forged in the post-war years when the public was willing to do anything to prevent a repeat of those atrocities. But the majority of Europeans were born well after the war. If Brussels expects to be able to push through closer economic integration over their heads, it may be in for a rude awakening. Even in Brussels, pigs can't fly.

Comments: 51

Forget Greece - or the other Club Meds - LOOK AT AUSTRIA - as Rifleman points out on Ed's blog posting (about our £250bn exposure to Club Med) - Austria has huge exposure to non-euro and even non-EU eastern Europe. As I said to Rifelman: "I was talking to some parishioners last weekend who work in the city (they pop up here for some fresh air once in a while). They ‘trade’ bonds – and apparently Austria is high on their list of suspect economies – I know it doesn’t fit any of the acronyms currently on the table (how about GAUkPIrSItCh) but there it is – AUSTRIA – remember that country over the next few weeks – (could be 1933 all over again – see AEP’s past musings on CreditAnstalt – [sp?]). Blessings for a sane solution (if such a thing is possible) - and don't forget "ever closer union" means EVER CLOSER economic and political UNION -the two are essential for the long term realisation of the European dream - they were always are baked into the EU cake - that's why eating it leaves a bitter taste in your mouth! Father Ignatius Brown

Who pays? Who collects?...follow the money.

hans321 @ 9.58 The Wikipedia entry does not need correction - it is information from 2006. Since then Tony Blair negotiated away the Thatcher hard fought rebate , and the British contribution has risen by 60% (will rise to 95% by 2012). At the same time German budgetary input has been reduced as its commitments to its own basket case (former East Germany) have been recognised and funding reduced.

Let us just make sure we don't have to pay for this. The sooner the Euro collapses the better. Then other European countries will be forced to take a more realistic view of the Lisbon Treaty et al.

"in the end a currency union will fail unless there is some form of central economic government with fiscal powers" In the end, a central economic government in Europe will fail because it has no legitimacy and is not supported by the people of Europe. Any such structure would be torn down in the same way that the other Soviet Union was.

Come on guys please see past the news headlines. Whenever the UK gov wants the pound weaker they wheel out MP expenses scandals OR more bond purchases. Whenever the EU wants the Euro weaker they have the choice of a periphery of weaker countries to bring it down. Governments pretend to fail in a cyclic manner.

If the EU manufacture an economic government - what will change, the pigs will still spend and the Germans will be the props, since money, business, jobs etc are allegedly mobile within the union. The money migrates to the best home as it is reported to be doing from Greece. Seems there is going to be resistance at both ends of the rope. Will it snap?

The Euro is not going to fail, Germany's politicians (though not its people) will not allow it and they do have the financial muscle to impose a solution. Well, a temporary solution, with painful conditions. The Greeks will not be happy to live within those severe constraints, losing a lot of living standard, and I predict that within a couple of years, Greece and several other countries will move to a Euro II for non-core countries. It will be a second European currency for less disciplined countries and will depreciate against Euro I and the USD while the second bloc's economic performance remains relatively very poor. You never know, perhaps the UK could finally meet the conditions to join the new Euro II! Maybe this would not work but some sort of two speed arrangement will have to be introduced or there will be endless problems in the EU. I think the UK fits neatly in between strong countries, France and Germany (etc) and the profligate south, though rather closer to the latter.

How daft was it to think that we could ever have Europen unity on anything. The differing cultures from the UK side of the region to the East make this impossible. Tantrums from some cultures when their Governments try to excercise restraint are to be expected, especially from a country where many homes are left unpainted and unfinished to avoid tax payments. For many years nobody in Greece paid any form of road tax. Officials were shocked when my sister in law, then living in Crete tried to pay for a motor cycle licence. In this country only politicians and bankers cheat, in other Med countries and the Eastern bloc everyone does it. Time to split before tiny UK ends up paying for everyone to send V signs to their Government. At least some countries need to be expelled. I must say though that the roads in the Greek nation have improved thanks to EU money, I wonder what else?

I am not an economist, therefore, I probably do not understand why a weak Euro, as a result of this crisis, ideally at 1 : 1 to the US$, should be bad for Euroland. What is good for the goose is good for the gander! When Euroland is exporting more than it imports, has a captive market of 70%, the biggest in the world, a de facto devaluation of the Euro against the dollar and sterling would be a blessing. Inside Euroland it would not make any difference. On the contrary, importing would become more expensive so imports would shrink. Exports, however, would soar. Probably too simple a solution to work?

I think many of you are just smarting from your own problems in the uk.Of all the European Nations, Britain has had to THROW more money into the banking system than any other country......and all this money is coming out of your pockets....Regarding Greece, yes, I agree that maybe 50% of the benefits received from the EEC where used for OTHER purposes but, you seem to forget that the so called STRONG countries within the EEC have in turn flourished with the common market, ie. Germany exports to the EEC have grown enormously or isn´t there a couple of BMW´s and one or two Merc´s.. in your street??? Plus other goods manufatured by either Germany or France....So, let´s not be so cynical. A tougher EEC commission is what is needed, more in line with Bundesbank measures of the last part of 1900´s.

Fawlty Towers rides again - on his trusty steed Faulty Logic.

Clausewitz...Europe must hope that AMERICA gets back on the highway...up the creek? EUROPE is not "toast". Its AMERICA thats eating humble pie with their trillion dollar deficit this year. CHINA finances AMERICA...even if AMERICA fears CHINA. Britain next in line? Calling the IMF Mr Cameron?

“John Rigby: Last year Britain contributed 21% of the European Union budget.Out of the 27 nations now part of the EU this was by far the largest funding even though we have a considerably smaller population than for instance Germany.” You should correct the wikipedia entry which puts Germany’s contribution at 21% and the UK’s contribution at 13 % of the budget (also behind France and Italy). http://en.wikipedia.org/wiki/European_Union_statistics

It is not in my nature to wish ill upon anyone, but given the inextricable pull of ever-deeper-union, and the fact that a euro-collapse is the only sure way to reverse that pull, i really am hoping that the euro suffers a short sharp and total collapse. It would keep Britain safe from our own spineless politicians for at least another generation.

Every cloud has a silver lining

We'll give them back the Elgin Marbles then they can sell them to China for a lot of money and save the Euro. China can then make lots of copies to sell to the world and save their manufacturing base. We can buy a copy and put them back in the museum and save our(?) culture! Everybody happy! Simples!

Well said SOS - the EU is a corrupt dictatorship by committee. It is racked with corruption and nepotism. Its account haven't been signed off for 10 years now (I think). Like all corrupt dictatorships it will fail. Please let it be in my lifetime.

"If Brussels expects to be able to push through closer economic integration over their heads, it may be in for a rude awakening" You're being far too optimistic. The EU has tried and tested methods for avoiding the will of the people, and indeed no longer considers the will of the people to be of any consequence. Charles Lee makes an excellent point about how the Irish must feel.

Since the start of the Euro Telegraph intellectuals have been predicting its demise.For twenty years the French economy has been going down the pan according to the great oracles. Take a look at the euro/dollar/sterling exchange rates and there is only one word for the Euro, a success.The pound by comparison has been going down all my life. Sorry Edmund a small economy like Greece csn't bring the Euro down.The economy of Hawaii can't wreck the dollar.

GREECE is now a byword for profligacy and gluttony. However the cycle of debt is not exclusively GREEK. FIRST: Banks lend 130 percent res.mortgages; like Britain. Dirivatives traders and hedge fund managers become overnight millionaires in the Cayman Islands...by shorting. A self-fulfilling prophesy? THEN: LEHMANS goes bust along with BEAR STERNS and MERRILL LYNCH...and RBS on dirivatives. Governments give the banks a TRILLION DOLLARS by printing money..and guarantees to RBS for 300 billion POUNDS. LAST: ALL government spending to be cut to the bone to pay for the bank bailouts. Greece today....BRITAIN soon.

My concern is that Brown will throw sterling into the pot to help the Euro, and thus, help the PIIGS. Firstly, Brown has no mandate from Westminster and the electorate of the UK to offer any monies to support the Euro; secondly, mainly because of him, and Darling too, we are in a dire strait, and we have no surplus with which he can support the Euro. The sooner the Euro fails the better, as it will, hopefully, precipitate the demise of the EU's ambitions to transform itself into a large Federal state. And that for me would be a good thing. So here's hoping the EU experiment is about to implode!

It's generally accepted that genuine monetary union is not possible without full economic/political/fiscal union. Given this fact, will the situation in Greece (and in other Euro-zone countries to a lesser degree) signify the end of the Euro project or a wonderful opportunity to justify pushing on with full union?

Children of 10 once said of the EU: how can one currency work for so many different countries? Some answered: it can't. Other answered: shut up and eat your toast. Now Europe's toast/

It would be nice if this were an opportunity for David Cameron to be able to remind voters that Mandelson - and of course Blair - were besotted with the idea that we should join the euro. But then he would have to explain the mysterious europhilia of Ken Clarke. I do wonder how ANYONE could ever have thought that this mad project would last in any useful form. If only common sense weren't a near-illegal commodity these days...

the dracama. was a mickey mouse currency , now they have done the same to the euro

Charles Lee : 7.57am "Edmund Conway has put his finger on the core problem of Euroland. Without central economic management a single currency can't work." With respect to both you and Mr Conway, you will find that the logical inevitability of the requirement for political union was the centrepiece of the argument made by Enoch Powell in the mid-1970s in his book "The Common Market : The Case Against".

It's all Greek to me. As I remember the ERM in the 1990's was a 'dry run' to see if a single European currency would work or not. It spectaculary did not work. But with its normal arrogant hubris the EU decided to press ahead with the euro anyway. Those who have sailed in the beautiful Greek waters will know how many marinas were started but never completed. This is because the economic development money given by the EU to Greece to start such projects was used to buy new Mercedes cars and home improvements for local politicians. We sailed to Pilos from Malta a in 2005 and looked for the marina which, according to our Rod Heikel pilot book, should have been finished by 2000. All that was there were a few reinforced concrete pontoons which were already disintegrating as the cement had been mixed with salt water rather than fresh to save money which could instead line the pockets of the local dignitaries. Five years later the marina at Pilos is still not finished - there are no proper tie up points, no water supply, no electricity, no lavatories, no showers, no laundry facilities - in fact none of the things sailing folk expect to find when they fork out their money for a marina berth. Pilos is not an exception - it is typical of literally hundreds of marina projects in Greece funded by the EU which have come to nothing. On the other hand neighbouring Turkey - without the 'benefit' of EU handouts - has built up a thriving business for yachtsmen where the marina facilities are the best and most competitively priced in the Mediterranean. If one wants a good example of why socialism does not work one only has to see how the Greek yachting marina business has fared with handouts and how the Turkish marina business has fared without them.

To help any EU country financially would only mean another dose of Brown economics. Borrow the money, add to the national debt and worry about paying for it sometime in the future.

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