In the Greek drama one
thing is certain: according to the criteria of optimum currency areas (OCA)
theory (the validity of which has been amply vindicated by the recent evolution
of the past few years in the eurozone) Greece cannot be part of the same
currency area as Germany. And
since the euro has been managed as a “DM bis”, Greece cannot anymore be part of
the eurozone. It never should have been
admitted in the first place, a reality readily acknowledged, with a perfect
logical inconsistency, by those who at the same time assure us that it is out
of the question that Greece could return to monetary independence.
In reality, insofar as it
is totally impossible for the Greek economy to morph into a sort of clone of
the German economy, even by investing a huge amount of time and effort, there
is no other way for Greece to resume a path to prosperity than by an exit from the
Eurozone as soon as possible, while defaulting partially or completely on its
debts in euros that the French and German bankers and the ECB detain.
A new drachma that would
be devalued in the first weeks by some 30 to 50% from an initial parity definition
relative to the euro and the dollar would instantaneously restore the tourist
and oil industries international competitiveness. But of course such a move would raise the
question of the sanctions external financial markets would apply to the
defaulting borrower. That is the crux of the
problem and it is the reason that prevents Greece from defaulting its way back
to prosperity. This is also what
prevents today the Greek government to choose the exit from the euro, for fear
of inextricable financial difficulties in the near future.
It also appears that the
Greek public opinion wants to keep with the euro, probably as a token of its
close affiliation with the smallest inner circle of the European Union, so
great is the Greek distrust of its Turkish neighbor. But it is equally clear that it is not and will
not be possible in the future to simultaneously satisfy the legitimate
aspirations of the Greek people to regain prosperity and its aspiration to keep
the euro as its national currency. The
Tsipras government thus tries to demonstrate to the voters that the northern
Europe creditors, and especially German ones, allied to the IMF in the Troika, intend,
by refusing to grant new payment and credit facilities, to force the country to
leave the euro, against his will. The
Greek government thus hopes to renege on its commitment to stay within the eurozone
without suffering the political penalty that disaffected voters could impose on
Syriza.
For its part, the Merkel
government, the leader of the creditors and therefore a strict adherent to
financial orthodoxy, which is not illegitimate, knows that his constituents want
to avoid at any cost a commitment towards a federal Europe that would imply
permanent transfers to southern European countries, in the same way that
northern Italy subsidies on a permanent basis the Mezzogiorno , or west German
Länders the eastern ones. Indeed, these transfers can be understood as palliative
care but they do not effectively treat the underlying problem of inequality in economic
development. It follows that,
rationally, both the Tsipras government and the Merkel government have in fact to
recognize that a Grexit is unavoidable. But both are trying to shift all the
responsibility of the rupture to the other party, for electoral reasons: Mr.
Tsipras because he promised his constituents to remain in the euro and Ms. Merkel
because she promised her own electors not to grant any more aid to a Greece
described as "parasitic".
The euro is the bone of
contention that, instead of promoting an "ever closer union" among
the member countries of the area, gradually leads to a breakup of the European
Union, a trend that was perfectly understood and predicted by the American
economist Martin Feldstein as early as 1992.
Can one imagine a
solution that would allow both antagonistic governments to implement jointly their
only common and realistic policy while substituting a real European solidarity to
the destructive current confrontation within the EU? This is in my opinion a matter of positive
incentives. Economic analysis and
rationality leave no doubt about what the outcome will be: the Grexit must
prevail. To get it by agreement
between the two protagonists rather than by the use of a showdown in which each
side is trying to shift to the other all the responsibility for reaching this
necessary conclusion, Germany has to make the Greek exit both honorable and
nontoxic for the southern economy. First
it has to make clear that it is impossible to save the Greek economy from
complete destruction without restoring an independent currency tailored to
their specific needs, economic as well as political. But it should make this exit solution even
more attractive by providing financial assistance not in the case in which Greece
choses to stay in the straitjacket of the euro, but on the contrary only in
case of an exit. It should be a sort of a new
Marshall plan, concerted with other European countries, supplying Greece renewed
funding after partial default for a limited time only. The plan should be
established in liaison with the ECB that would act in the same direction.
Such an aid is justified
by the fact that all the Eurozone countries that accepted the entry of Greece
in the euro should share some responsibility for that major mistake and pay for
it.
For its part the Greek
government should, in these circumstances, speak the language of truth to his
constituents, and explain clearly that the return to growth is possible and
will be supported by the other European, but at the cost of exit of the euro.
Such an exit would not mean leaving the European Union, on the contrary. But the positive results of such an exit
coupled with a substantial devaluation and a partial erasure of its debt in
euros, and of a once and for all new aid from other Europeans should lead to positive
results in terms of growth in a few months, certainly enough to win most of the
Hellenic voters to accept the new policy and overall situation.
Instead of escalating
towards an acute crisis in a confrontation of two governments that in fact basically
agree on the only possible solution, a constructive agreement of European
solidarity would satisfy both the legitimate aspirations of the German people
and the Greek one.
But this requires a
little more realism and high mindedness in Athens, Berlin and Frankfurt.
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