Bill Emmott - International Author & Adviser


If I were Greek, I´d vote for the Plague Party
The Times - May 14th 2012

Many of us, when confronted with a ballot paper, feel an urge to put a cross in a box marked “a plague on all your houses”. The snag, representative democracy being what it is, is that if enough of you do that you will end up with the Plague Party running the government for the next few years. That, roughly speaking, is what Greeks did last Sunday in their general election, what quite a few Italians did in their local elections on the same day and what even Germans voting for their (real!) Pirate Party have been up to.

            Now the question Greeks and the world’s bankers are all pondering is whether a vote for the Plague Party if or probably when Greece holds another general election on June 17th will mean leaving the euro, and most of all whether that would be as deadly a move as the Black Death or whether it might actually be a good thing. Sooner or later, voters in other euro-zone countries may well have to make a similar choice.

            Those readers who think the euro is itself tantamount to the Black Death will think the answer is simple. But it isn’t, partly for boringly contingent economic reasons but mainly for this also simple one: that the euro is itself, like many aspects of European Union membership, an anti-politician device. So a vote cast against politicians that had the effect of destroying the euro and making politicians more powerful again would be, shall we say, paradoxical.

            For that reason, if I had a vote in, say, the Greek and Italian elections, I would vote differently on this point in each of them. I would risk leaving the euro if I were Greek, but I would cling tightly to Nurse Merkel’s apron if I were Italian. I would so the same apron-clinging if I were Spanish or (less confidently) Portuguese.

            Why the difference? Mainly, it is a matter of hope. Greece’s economic predicament is so bad that it is hard, probably impossible, to see how it can continue on its current course. Its annual GDP has fallen by nearly a fifth since 2007. Even if it meets the deficit-cutting and structural reforming conditions of its February international bail-out loans, it will still be left bearing an impossibly large public debt, which its fellow euro-zone members cannot afford to forgive because of the implications for other members’ debts.

            Hence, when Alexis Tsipras, the young head of Greece’s Plague Party (real name Syriza), says that he will call the Germans’ bluff and simply demand better terms on the rescue loan and so stay in the euro he must know that this is nonsense. It would be electoral suicide for Chancellor Angela Merkel to agree to anything like that. Greece would have to leave the euro and declare a full default on its sovereign debts.

            Doing so would feel dangerous but it would at least bring hope. Greek banks would have to be nationalized and drastic legal measures brought in to enable ordinary Greek households and companies to convert their private euro-denominated debts to a new currency. The new currency would plunge in value. But, although in a depressed world economy that would not bring a rapid Greek export boom, just as sterling’s 25% devaluation in 2007-10 did not rescue Britain, it would stand a chance of quickly bringing international investors back to Greece.

            That is what happened to Iceland after its financial collapse in 2008-09. The pain was acute but with hindsight fairly short. Greece is currently suffering acute pain that is far from short and shows no sign of ever ending. Doubtless it will, one day, but by then Golden Dawn’s ultra-nationalists might have taken over.

            To be the first country to leave the euro would be humiliating, but Greeks can think of it like this: if several were to leave and introduce devalued new currencies at the same time, the benefit of doing so would be less, if any. Being alone will make it a lot easier to market that newly cheap Athens waterfront property. And although some warn darkly that this would mean Greece also having to leave the EU as a whole, that is a bluff Mr Tsipras could confidently call.

            It is a strange and funny story, the euro, even if those stuck in their current austerity traps will find it hard to smile. The oddity is that when Europe’s new currency was launched in 1999 two crucial, but quite different, mistakes were made.

            One was that the politics of wishful thinking prevailed, persuading Germany’s Helmut Kohl to admit countries that were patently unfit to join, most notably Italy, and even more so when Greece was admitted two years later. That was a mistake by arrogant political elites. They endangered their own currency by burdening it with political aims of solidarity and inclusion.

            The other vital mistake, however, was that those same elites chose to rely on financial markets to discipline the unfit euro members, which the markets failed to do. Having grossly underpriced the risk of lending to Greece and other southern European borrowers, markets are now doing the opposite, holding countries’ feet so firmly to the fire that some of the flesh is cooking.

            It is perhaps odd that now that markets are finally doing that job, the euro-zone is planning to substitute a system of political rules and punishments for that market discipline. But then the lesson of this crisis is that both rules and the market are needed.

            If Italy, Spain or Portugal were to vote to leave the euro, they would lose the potential benefit of the rules and risk allowing their politicians to play fast and loose with the markets, as they did in the bad old inflationary days of the 1970s and 80s. In those decades Italy, for example, ran a budget deficit that averaged nearly 10% a year, which is what got it into its current mess.

            Greek politicians may well play fast and loose again in future too. But the difference between the other southerners and Greece is that their debts are more manageable and that if a bit of demand could be stoked up by higher German wages and by extra capital investment, it could be enough to let them turn the corner. While that hope exists, it is on balance best for the others to keep the straitjacket-effects of euro membership.

            That is simply not true for Greece.  Mr Tsipras is not really “anti-austerity”, since Greeks will have that whether they stay or go. But he is anti-straitjacket, for the Greek body inside it is dying.


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