The “wise heads” of the EU establishment think the Greek New Democracy (Conservative light) party should join forces with Pasok (Socialist light) party yet again in coalition and carry on with business as usual. These parties were rejected by two thirds of the Greek electors. What part of “No” does the EU establishment not understand? Once again they do not get this democracy idea. The two parties themselves decided not to undertake this task, but more negotiations lie ahead.
Yesterday morning I listened to a Greek commentator saying the people had elected a Parliament of clowns and worse. He objected fiercely to the people not knuckling down and voting for candidates who were prepared to tell them that the European dream meant the continuing reality of austerity in the form of ever higher taxes and further attempted reductions in state spending. He should understand that the people voted as they did because they think the Euro dream has become a nightmare, and they want change.
It is true that many Greeks think they can have both the Euro and less austerity. I presume they think the EU authorities should send them more money on easier terms to pay the bills. That is unlikely to occur on a big enough scale to save the day. The best answer the EU authorities could give to the Greeks is this. They should make it crystal clear that they have understood the Greek people hate the current EU imposed policy. They should be told they can change the policy as they wish, if they leave the Euro. The EU should facilitate early exit of Greece from the Euro, by undertaking the necessary secret planning to bring this about.
Greece has to form a new government. It would be best if that new goverment was a government of politicians who oppose current EU austerity policy. They after all collectively won the election, which was a decisive rejection of EU austerity. They then need to be talked to firmly by the EU authorities with a simple choice. Either accept EU austerity and go back and tell your voters you were wrong, there is no alternative, or work quickly and confidentially with us to achieve the exit from the Euro the country needs as soon as possible.
Once Greece is out of the Euro then it can follow its own policies to put recession behind it and to show some growth. It can at least make more rapid progress in righting its balance of payments deficit. It will not, of course, mean the end to the need to cut the state deficit, as Greece’s borrowing will depend for some years on the IMF, as it does already. If they print enough but not too many drachmas and stabilise their banks after the devaluation, they might have some growth, which would help. They will still depend on a fairly lethal mixture of reneging on debts and presuming on international organisaitons to lend them more money to pay the bills for excess state spending.
Mrs Merkel’s vision of a German disciplined EU with strict control of budget deficits is merely producing a no growth Europe with very high taxes. Rich and enterprising people are leaving the most stressed countries, or sending their money abroad. The tax base is falling. The private sector is being squeezed too much. People are voting against it, and against incumbent governments. The cash economy is thriving as people run shy of the tax collectors. Just like the Exchange Rate Mechanism before it, European monetary ideology is taking too great a toll of people’s jobs and living standards. I recommend my scheme for early exit of Greece, available as the third download “The future of the Euro” on this site. The Euro area has now reached the point where even if they fix the banks in the main countries and print some more Euros, the money is not going to circulate in Greece to stimulate the economy there.
Germany and France should want Greece out of the currency. Far from worrying about contagion spreading if Greece leaves they should worry about contagion spreading if Greece stays. For Greece to remain in the other states have got to provide a lot more money for Greece. That in turn will weaken the other states’ finances even more.