I am writing this on the morning of the Greek referendum result, which the Greek Prime Minister Alexis Tsipras won by nearly two to one. Although it is not necessarily obvious here in Angus & Mearns, the on-going Greek crisis has the potential to damage us all through a further banking and perhaps financial collapse if it is not addressed and resolved.
I remember the Greek debt crisis starting with the brave admission by the then PASOK Prime Minister George Papandreou, also a ‘left wing’ leader if that label means anything, that he had inherited years of lying about Greek state finances, and going to his colleagues in the Eurozone for help. What he got was the first bailout in 2010, with a loan to save Greece from default on condition of an internal devaluation through harsh public spending cutbacks. What he did not get was a referendum, which he wanted, but which Eurozone politicians particularly in Germany refused to countenance, and which at that stage he could probably have won for the bailout terms; as austerity bit, Papandreou resigned a year later.
I was in Crete in 2011, and found people saying that yes, there were problems of a state based on patronage and clientelism, in which too many people did not pay their taxes and corruption was rife; both the major parties, PASOK and the conservative New Democracy, were guilty of ruling through their patronage networks, which was why many people did not want to pay their taxes. Also, the state did too much. The hotel we were staying in was owned by the state, and the manager was a civil servant. As a result decisions were taken which were not business-like, such as cutting the hours of staff working at the ancient Cretan sites and turning away tourists. Meantime, wages had been cut by a third, and with fewer tourists everyone was struggling. So at that stage I thought that the internal devaluation had been ineffective in making Greece competitive, at least in part because none of the problems of the Greek state had been tackled.
Countries with their own currency can devalue if they become uncompetitive, but it is not automatically successful in the long run and means their exports earn less anyway. A common currency means no devaluation by an individual member state, so that the only way to make good any lost ability to compete is by savage cost cutting, the so-called internal devaluation, which has been successfully applied since the 2008 banking crisis to some actual or intending Eurozone countries, Ireland, Estonia and Latvia in particular, but less successfully in Lithuania, Portugal and Greece. By 2012, PASOK was replaced by a technocratic Government, ushering in a second bailout with losses to Greek creditors in the private sector only and a New Democracy Government after two general elections (the first of which Tsipras nearly won), which met some of the financial targets but not the privatisations which were part of the 2012 conditions. Still no reforms to the Greek State.
In 2014, Alexis Tsipras was the unsuccessful candidate for President of the European Commission of the European United Left-Nordic Green Left, and made a speech in Berlin setting out why he disagreed with the economic policy espoused among others by Angela Merkel, the German Chancellor. Having led the largest party in Greece in the European elections, and having won just two seats short of an outright majority in the Greek Parliament in January 2015, he is unlikely to change his course now. An agreed way forward would allow him to tackle the reform of the Greek state as well as promote social justice and grow the economy.
Is there a Liberal way forward? I think there is if the Eurozone leaders are wise. Firstly, they must stop talking of a Greek exit from the Eurozone or even the European Union, because it is seen as bullying and unacceptable interference in Greek democracy designed to bring about a government of the right; in any case, ‘Grexit’ will harm Europe as well as Greece. Secondly, they must accept that Tsipras means what he says, which is relief from part but not all of the debt to make it sustainable, and an end to the failed internal devaluation to find another route to growth (and the International Monetary Fund has recently agreed with him on both these points, not least because growth is a good way to debt reduction, though they still think the Greek state has to reduce its spending within the Greek economy as a whole). Thirdly, the Eurozone must reform itself, which will mean treaty change of some sort. It cannot make the common currency work without at least a banking union and shared responsibility for debt, and probably not without a fiscal union. Doing this would mean the United States of Europe is almost upon us, which should not happen without the express democratic consent in a referendum of each country wishing to join such a new state. If the Eurozone decides it does not want to be a pathway to a United States of Europe, it must remove the ‘ever closer union’ phrase from the treaties, implement the existing mechanisms for shared responsibility which may yet need changes to the German constitution, and apply the criteria of the Maastricht Treaty to the letter, because they were designed with British help to avoid insolvency and have been breached by virtually all the Eurozone members, starting with Germany and France.
Given the 2005 referenda in France and the Netherlands which rejected the 2004 proposed Treaty establishing a Constitution for Europe, it seems to me unlikely that a United States of Europe will happen any time soon and quite possibly never, in which case it is time for the European Union to face up to that reality and write a new treaty to ensure that the EU exists solely for its agreed purposes, such as the Single Market, and collaboration on agreed matters such as tackling climate change or working against international crime. If the phrase ‘ever closer union’ were to go as too vague, it could be replaced by a mechanism for the creation of a United States of Europe by those individual countries, if any, that wished to create one, but it would be defined as just one of the member states of the EU, with no right to impede the agreed work of the EU, no right to recruit outside the EU, and no expectation that any other EU state would join it. If such a revised treaty were to result from the Greek crisis, Alexis Tsipras and the Greek people would have done us all a favour. And Mr Cameron’s forthcoming negotiations would just have become a whole lot easier!