Colin Chapman on Greece and the Euro

We should not get carried away by the slight bounce in share prices that followed the news from Athens that a slim majority of Greeks had voted for common sense rather than self-destruction.

But Antonis Samaras, leader of the centre-right New Democracy party, faces an uphill task to put together a survivable government. It will be even harder to renegotiate the agreement with the European Union.

The EU may throw a few sweets in Greece’s direction, perhaps extending debt payback time limits, but the overall thrust of the agreement is non-negotiable. And then, even if some compromise can be reached that is acceptable, there is the enormity of the task faced by New Democracy and its partners.

There are 250,000 poverty-stricken Greeks who are dependent on soup kitchens, staffed by volunteers. There are tens of thousands – yes tens of thousands – of foreign asylum seekers, many of them from Syria, living rough under the summer skies, with no support of any kind. The United Nations High Commission for Refugees has yet to tackle this task. Compare this with the small number of boat people in comfortable detention on Christmas island or in Australia.

And then there are hundreds of thousands of Greeks who have managed to avoid paying taxes, or live in a black economy – a situation which the authorities have allowed to continue.

The Greek elections will prove to be just a short chapter in a saga which began with the Treaty of Maastricht in 1992, and will run for at least another couple of years before stability of a kind is achieved.

That stability may or may not involve the survival of the euro as the common currency for the eurozone, whose 17 EU members have embraced a unified monetary system – unlike the ten members outside the zone, which include Britain and Sweden.

The leading beneficiaries of the eurozone, particularly the Germans, the French and the elites employed in the main European institutions, will fight to keep the eurozone, even if it means losing a member or two.

But the fabric will change, because the present establishment is untenable. The common foreign policy has been weakly conducted, and major players like Germany, France and Britain have shown no desire to give up their national interests to a common pool. Germany, in particular, has worked closely with Russia on its energy needs – to the annoyance of some other members of the EU.

But it is in the domestic arena that the divergence between the members of the eurozone is most marked. The Mediterranean countries have a different way of life to their northern brethren. Life in rural France is different to almost everywhere else, where agriculture is heavily supported by the European taxpayers.

There are also big differences between the Med countries. Greece’s problem is national indebtedness, a social security system that allows people to retire at a (relatively) young age, and very high unemployment rate(22.6%). But those Greeks in work put in the hours. Spain, on the other hand, the recipient of an E100 million loan ten days ago, is riddled with huge private debt, has bad work practices, and a vast pool of unsold new properties, many of them in developments where the developer is bankrupt.

This example – and there are many others – reinforces the belief that Europe contains a group of nations, whose history, culture, economy, and outlook is very different from each other. The push to pursue national interests is now greater than working towards the common good.

For Europe to work, there needs to be a common market, without a common currency, as in the early days of the European Community, or a United States of Europe, with full political and fiscal integration, as in Australia. (And even Australia has a two-speed economy, with damaging consequences).

Achieving the latter will be very difficult, if not impossible. Achieving the former – a two-speed Europe – will be deemed a failure.

But there is something else going on. The socialists in France now have more power than at any time in their history – at the weekend election in France they attained a very solid majority. This gives President Francois Hollande more determined than ever to initiate growth policies and trim back austerity.

Austerity is going out of fashion, even in conservative Britain where more money is being pumped into the economy. At the next European summit in ten days time, M Hollande, supported by Italy, Spain and Greece will be putting pressure on Germany’s Angela Merkel to ease the pain.

President Hollande will go further. He is pushing for the European Central Bank to be given the role of directing the European Stability Fund, and for it to be directed through the banks, with the authority to not only supervise them but to shut them down if they do not perform. The idea of a deposit insurance scheme is also taking shape in the French Treasury.

Support for Hollande is growing, and not just from the left. If these ideas gather momentum – as i think they might – then Europe will have taken one small step towards banking union, although fiscal and political union still remains a distant dream.


Colin Chapman is president of the AIIA in New South Wales


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