The Greek debt crisis is deepening, in other words; and there are only two options. We could continue down the road we are on, in which the euro shambles becomes an invisible and surreptitious engine for the creation of an economic government of Europe. Indeed, there is a sense in which the slow-motion disaster of the PIGS – Portugal, Ireland, Greece, Spain – has been terrific for the federalist cause. Bit by bit we seem to be creating a fiscal as well as a monetary union, in which huge sums – including about £20 billion of UK bail-out cash – are being transferred from the richer to the poorer parts of the EU. The idea is that Germany, France and others should “socialise” the debts of the periphery – take them on, in other words – so as to keep the eurozone together and to stop the domino effect, with all the attendant damage it is feared that would do to the European banking system.
These profligate and improvident countries would be obliged, in return, to submit to a kind of economic supervision that is now proposed for Greece. Taxes, spending, benefits – all the panoply of economic independence – would then be subject to agreement with Berlin and Brussels. I sometimes think Kohl, Mitterrand, Delors and co instinctively knew that this would happen.
They probably calculated that if only they could achieve monetary union, the euro would create such strains that the de facto creation of a United States of Europe would be impossible to resist. The trouble is that there is just no democratic mandate for anything of the kind.
As Angela Merkel is constantly obliged to point out, the German people would never have supported joining the euro if they had been told that they would become the guarantors of the debts of Greece. The Greeks would never have gone into the euro if they thought it meant the complete surrender of their economic independence and the destruction of their standards of living. As for the UK taxpayer, none of us believed that a condition of EU membership was the payment of billions in ransom money to stop the euro blowing up.
For years, European governments have been saying that it would be insane and inconceivable for a country to leave the euro. But this second option is now all but inevitable, and the sooner it happens the better. We have had the hamartia – the tragic flaw in the system that allowed high-spending countries to free ride on low interest rates. We have had the hubris – the belief the good times would never end. We have had nemesis – disaster. We now need the anagnorisis – the moment of recognition that Greece would be better off in a state of Byronic liberation, forging a new economic identity with a New Drachma. Then there will be catharsis, the experience of purgation and relief.
I don’t believe that Greece would be any worse off with a new currency. Look at what happened to us after we left the ERM, or to the Latin American economies who abandoned the dollar peg. In both cases, it was the route to cutting interest rates and export-led recovery.
The euro has exacerbated the financial crisis by encouraging some countries to behave as recklessly as the banks themselves. We are supposedly engaging in this bail-out system to protect the banks, including our own. But as long
as there is the fear of default, as long as the uncertainty continues, confidence will not return across the whole of Europe – and that is bad for the UK and everyone else.
It is time for a resolution. And remember – if Greece defaults or leaves the euro, then we will not see that UK cash again. Indeed, we are more likely to be repaid in stuffed vine leaves or olive oil than we are in pounds or euros. We should stop chucking good money after bad.