The IMF has apparently come to two conclusions on Greece which the rest of the Euro area does not wish to admit. First, Greece will not be able to pay back all that she owes. Second, she needs another Euro 50 billion. Why then did the IMF lend Greece so much before with the pretence that it would work?
If Greece is to stay in the Eurozone she will need Euro 50 billion or more, to have enough cash for her banks to distribute and enough money for her government to pay its bills. In a normal currency zone this money would be sent to the poorer part of the zone and much of it would be grant, not loan. A city or county in the UK with low incomes and high unemployment does not have to borrow from the rest of the UK, but receives central cash to pay welfare benefits, pensions and local authority costs by way of grant.
If Germany wants to carry on with her currency zone then she has to accept that German taxpayers – and the taxpayers of other rich countries – have to fork out to pay for Greece. Greece, for its part, has to accept that the Eurozone can then settle its budgets and interfere in its government decisions.
It is deeply damaging to the Greek economy and people to go on pretending that Greece can pay her way locked into the Euro, and to pretend the European institutions can get all their money back with the agreed interest. After seven years of agreed programmes for reform and all that borrowing Greece is no nearer today to being able to repay than when it all started. So the rest of the zone must either pay up or tell Greece to leave. Outside the Euro Greece will become more competitive immediately and better able to pay her way. Her borrowing will then be limited by the market to levels she can afford.
the zone is cruel and unrealistic. It needs to tell Greece to leave, or it needs to pay up and take social responsibility for the unemployment and severe cuts it has helped create.
About John Redwood
John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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