Imagined phone call to Bundeskanzlerin, evening of June 17th…
AT to AM:
“Έλα Angela! Alexis here. Happy to tell you that Syriza just topped the poll in Greece and I’m going to be prime minister!
“Sorry about all the monkey business last month, but under the Greek constitution, the poll winner gets an extra 50 seats and we didn’t top the poll last time, but now, after this second election, Syriza have a majority.
“I’m sorry about the instability the confusion caused. I know that your banking system is 85% state-owned and after Greece defaulted in March it has another gaping hole on its balance sheet, so a financial crunch is not welcome.
“Anyway, good news, we’re not going to leave the euro - and nor will we anytime soon. I hope that when I make that commitment it will calm things down. I must say I’m a little surprised it’s such an issue: it was never on the cards. Greece doesn’t export much, and if we left, it would destroy our purchasing power.
“Oh, yeah, and don’t worry; of course we’re going to follow the agreed austerity. Why wouldn’t we? Thanks to the agreement the previous government signed, the EU are now going to give us €35 billion to recapitalise our banks and €50 billion for the next two years’ budget deficits. We’d be daft to turn that down.
“What? Will we pay it back as agreed in two years time?
“Well, I’m glad you asked that. All I can say is that we’ll review it at that time.
“I’ve told the Greek people that we won’t pay back the money if there’s no growth in the eurozone, and that’s not something that Greece can do anything about.
“I’ll just leave that one with you.
“Yes, that’s right: no austerity without growth.
This debt crisis was never about public profligacy. Ireland, Spain and the UK had amongst the lowest levels of debt in the Eurozone in 2007. But Angela Merkel, aped by David Cameron, has used Greece, representing only 2% of Eurozone GDP, as the straw man for Europe-wide austerity. But now that Greece has defaulted many are confused that the crisis rolls on.
It turns out the strategy of blaming government borrowing while avoiding recapitalising the banks (in September last year the IMF branded Germany as materially non-compliant on bank capital) is rebounding horribly in shrinking bank balance sheets, recession and unemployment.
After Greece defaulted it makes no sense that they could still be seen as the centre of the continuing crisis. Why would they leave the Euro? It has more to lose in reduced purchasing power than increasing exports.
Why would it “default” on the agreement with the EU and IMF? It has already defaulted on its debt, and as part of the agreement the EU are about to gift it €35 billion to recapitalise its banks, and the €50 billion to cover its deficit for the next two years. Where else was it going to get that?
The only possible explanation for the confusion is the transition in the frame of the debate. The evidence against austerity is piling up as quickly as UK government debt. It turns out that austerity just brings more austerity: while the OBR predicted in March that 2014-15 deficit would be 4.3% of GDP, the City is now predicting it will be 5.0%.
The TUC has begun organising for its 20 October march for a “Future that works”. By then Angela Merkel will be in big trouble because the German right will be hopping mad that Greece has just taken €85 billion that it might not pay back, meanwhile the evidence against austerity’s ineffectiveness will be even stronger.
By the time we get to October 20th, “no austerity without growth” could be Europe-wide.