Yesterday I joined in the Queen’s Speech debate on the economy. I wanted to draw attention to the gathering storms over the Euro. Time was limited, so let me add a few points.
Yesterday it seemed unlikely that Greece can form a government. New elections are likely to produce a government even more strongly against the current EU/IMF loan package and austerity requirements. If a government can be cobbled together at the last minute from the present Parliament, it will have to go to Brussels to request a change of policy.
There are three possible outcomes following the formation of a new Greek government demanding a change of tack. One is that the EU/IMF say they can give no more. They have twice negotiated this package, and have accepted one large write down of Greek state debt owned by banks and other private sector individuals, companies and funds. They could take the perfectly sensible view that allowing another lapse in conditions of the loan would simply lead to other countries demanding the same treatment. It would undermine the discipline the zone needs, and would send a signal to all that there is no need to meet solemn requirements entered into. Either Greece has to back down and try to do implement the agreement, or they need to move quickly to arrange an exit from the Euro on this option.
The second possibility is we have another temporary fix. The EU/IMF would heave a sigh and give Greece some formula to relax the demands a bit. Maybe more debt could be written off. Maybe the timetable for meeting the requirements for reform and budget deficit cuts could be extended. The ECB might issue yet more money to other worried banking systems to support other states in trouble. Just enough cash would be released for Greece to pay the basic bills and stave off full bankruptcy. It would remian a matter of time before we had the same crisis again.
The third possibility is the Euro area moves more swiftly to fiscal union, with the richer areas accepting their responsibility to send much more money by way of transfer payments to the poorer parts like Greece. It is difficult to believe Germany would be willing to do this. Mrs Merkel has just suffered a bad regional election defeat and is unlikely to want to have to tell her electors in the run up to the German General Election next year that they are going to have to pay a lot more tax to subsidise the weak parts of the Euro zone.
There is a paralysis in decision making at the heart of the zone. Just as this phase of the crisis blows up France is undergoing a major change at the top. The new central partnership of Merkel/Hollande is still to be developed. Mr Hollande will be pressing his domestic demands, fresh from the French election trail, at exactly the moment both need to concentrate on Greece. More people are now saying Greece has to leave the Euro, but there is still no clear sign that that has become the prevailing view of the main players. To do it they will need speed, confidentiality and united purpose. They will also need a Greek government to deliver the Greek end of it.
It seems most likely we are in for another round of brinkmanship and temporary expedients. The worry some commentators are now expressing is that talk of Greek exit could lead to yet more money being shifted out of Greek bank accounts. The more the political leadership of the problem drifts, the more damage the markets can do. The drain on Greek bank deposits so far has represented a further tightening of cash and credit for the Greek private sector, at a time when that sector needs more money to grow to start to ease the pain.
May 15, 2012
The message from the powers that be seems to we are not letting Greece leave. Rather like Major and Lamont, just before they left the ERM “it had been an extremely difficult and turbulent day”. I assume preparations and being made for this behind the scenes. This unless Germany changes its mind and decides to pick up the bill now and going forwards this seems unlikely.
Doubtless Mr Morally Repugnant’s £10B soft loan to the EMF will be chucked away too.
I also see that tens of thousands of civil servants will be allowed to “work” from home for seven weeks over the Olympics. Will many even notice I wonder. Perhaps they should just retire or release them all.
May 15, 2012
So Hague tells the private sector to work harder. I assume in order to pay for tens of thousands of civil servants (already paid much more and pensioned circa 10 times more) to be allowed to “work” from home for seven weeks over the Olympics.
Sounds like a popular message for the 80% who do not work for the state sector.
May 15, 2012
Brian Paddick to recieve and index linked pension of £65,000 for life for 31 year’s of police service. This will cost the private sector millions.
How much did he contribute ? How many others are there like this ?
How dare William Hague say such a thing to private sector leaders when his government blows trillions of hard earned money hand over fist.
May 16, 2012
This is more per year than the average lifetime pot in the private sector (that is supposed to pay a pension for the rest of their lives). The private sector simply cannot afford to save for pensions largely because they are to busy paying taxes and NI for state sector waste and pension such as these. Perhaps pensions they can even take at 50. With perhaps 40+ years of £65K (plus index linked too) to look forwards too for then (and a partner). The rules do not even allow tax relief for a pension such as this in the private sector even if you have your own money to make the contributions.
May 16, 2012
£65k is more than the average solicitor or architect earns today.
The Tories are saying things which will alienate their core voters.
May 16, 2012
I know university professors in London who earn less than this. They work 12 hours a day, teach and do important research. If they can find funding, they will work another 15 years until they can retire. One of their research areas covered the effect of cannabis smoking on the ability to think clearly and remain sane.
May 16, 2012
I fear the UK will go *pop* because of its public pension liabilities.
May 15, 2012
I see that the institute of Chartered accountants have warned the the new stripping of child benefits from people earning over 50K will be an administrative disaster. This could surely be seen by anyone sensible but not Osborne and the Treasury it seems. It seem an additional 500,000 self assessment forms may be needed. What will that cost in time and money?
May 15, 2012
Also Tullet Prebon a city firm has noticed that “Austerity” is a spin job to fool markets. Claim of big cuts in public spending is “bare faced deception”. It is improbable bond markets will continue to fall for this spin.
Indeed it is.
May 16, 2012
Plus all the self assessment forms for the additional wealthy £35k pa earners who will now have to pay double tax on the interest on their bank account. In my case, this was about £2 last year, so it had to be declared. Well done Mr Moral.
May 15, 2012
“…tens of thousands of civil servants will be allowed to “work” from home for seven weeks over the Olympics.”
Is there any reason why they cannot do this on a permanent basis?
Think of the reduction of congestion on the roads, buses and trains!
Presumably they could also reduce their salaries to reflect the commuting cost savings? (not to mention time saved).
This sound like a win win win. If they don’t need huge offices there is even more money saved. In fact, why not outsource the jobs to areas of high unemployment?
May 15, 2012
Or just get rid of them all few would notice.
May 15, 2012
It seems that the main function of politicians is to initiate wars, bankrupt whole regions, ruin entire countries, interfere in private lives, encourage fecklessness – all the while living Royally off expropriated funds.
May 15, 2012
And that’s just the Germans
May 15, 2012
Pretty much yes.
May 15, 2012
On past experience, there will be another little ‘fix’ which will not do much more than kicking the can down the road – as has been done for a good two years now.
What I find interesting is the continuous cry for Germany to give more money because they’re ‘rich’. A bit like the continuous cries for higher taxes for ‘the rich’ here in this country.
This is after all the same socialist mentality – ‘the poor’ must be given what they need, with ‘the rich’ being obliged to provide for them for life.
I think that we are not given enough information as to how Greece ended up in this situation: taxes not being paid, huge public service bills, huge extra benefits, huge black economy, enormous flight of capital. Instead we’ve had lots of Germany-bashing.
More ought to be made of the fact that we contribute to this mess, regardless of being out of the € zone, simply through our EU contributions.
Perhaps our politicians ought to pay attention to the latest ‘demand’ coming from Brussels (Germany) that the Uk should pay for a fund to help Greece with exiting the €.
It is no wonder that more and more people are getting fed up with our EU membership, in face of the incompetence of the EU in dealing with this Greek tragedy.
May 15, 2012
Agreed. My expectation is another kick of the can down the road.
The reality is that no EU politician wants to, or will, take responsibility for a decision. It suits them for the market to take the decision for them by withdrawing cash from Greece. That course has the benefit of providing the politicians with the excuse to blame the market, rather than themselves, for an an outcome for which they were themselves responsible.
May 15, 2012
I don’t want to pay anything towards sorting out this mess, but if I have to pay I’d rather pay to help Greece leave the euro than pay to try and keep Greece in the euro.
In direct opposition to the views of the UK government I’m sure that it’s in our vital long term national interests that Greece leaves the euro, followed by a number of other countries, while it’s very much against our national interests to have the present eurozone preserved intact so that it can later expand and eventually engulf us as well.
Just a reminder that under the current EU treaties only two EU member states, the UK and Denmark, have a treaty “opt-out” from ever having to join the euro, while all other non-euro EU member states are under a legal obligation to join the euro at the earliest opportunity, and that obligation is automatically imposed on all new EU member states – Croatia is the next – and no country which has joined the euro can ever leave it.
And just another reminder that because Hague’s “referendum lock” law is not in any way entrenched, a future UK government would not need to hold a referendum before putting an end to our increasing “isolation” as we headed towards being the only EU member state not to have adopted its currency.
May 15, 2012
“I’d rather pay to help Greece leave the euro than pay to try and keep Greece in the euro.”
Did you see Matt today? He always makes us laugh, however bad it gets.
May 15, 2012
Option 2 seems the most likely with George contributing magnanimously with more borrowed taxpayers money.
May 15, 2012
“More people are now saying Greece has to leave the Euro, but there is still no clear sign that that has become the prevailing view of the main players. To do it they will need speed, confidentiality and united purpose”…..
Really? That would be a first for the EU, then?
May 15, 2012
Perhaps we would not be in the present situation if Greece had been told it needed/had to follow the rules at the outset.
Greece has had three opporunities already.
On Entry
First bailout
Second bailout and default.
Any more opporunities and there is no point in having rules in the first place.
How much credit do you give to a bankrupt who insists they are not going to change their habits.
The only solution if they all want to use the same currency is to have the same controls, tax, benefits, budget and spending plans for all, with strict German like controls over all finance.
This Solution unlikely as it then becomes obvious to all, that control of your own Country has vanished, and the European end game is out of the bag.
May 15, 2012
I discovered several years ago that different Euro notes bear identifiers of the country notionally issuing them. The Greek ones are serialed Y, V is Spain, X is Germany. If the great default happens ( or when ) and the big idea is that notes in Greece get stamped Austro Hungarian style. What happens to all the other notes? Why wouldnt a Greek sit on the unstamped paper notes they have and smuggle them across the border once the heat dies down? So would it be so far fetched to suppose that the master plan would simply be that the Greek Y notes become the Greek currency and everyone who has the notes in their possession takes the loss? I assume I am not alone in the UK in keeping the balances of foreign trips in Euros ( it being a hard currency and used in most places I have visited )? Millions of Brits with handfulls of Greek ( or Spanish or Irish (T), etc) notes may well lose money here too.
Once more, we wouldnt be here if we’d just let capitalism do its work and busted the banks way back when.
May 15, 2012
The smart move is to convert them to something else – US$ are accepted most places or £ for the UK. No doubt most of those Greeks able to do so will have squirrelled their holdings away in a safe bank (HSBC?) in another country (Switzerland?) before it is too late.
May 15, 2012
Millions of Brits will lose money that their pension funds have lent to the Greek Government. That will be more significant than a few Euros from their holidays waiting in the sock drawer.
May 15, 2012
One is that the EU/IMF say they can give no more. They have twice negotiated this package, and have accepted one large write down of Greek state debt owned by banks and other private sector individuals, companies and funds
===============
They haven’t accepted any writedowns. The ECB made sure that it was exempt from the writedown. Other people had to take the hit.
The reason was that the ECB has loaned more than its entire capital to Greece. A write down / default wipes it out.
Fiscal Union won’t happen. No one will vote for it and any politician that dictates fiscal union will be toast.
Greece will default completely. In for a cent, in for a Euro, if you are going bust go for the whole hog.
Now what. EU could kick them out. Greece could just say, we are carrying on. Government collapses and the Greeks just carry on using the Euro in an effective free trade area. No taxes because there are no services. A small cabal of government starts extorting money from people like the Mafia.
The drain on Greek bank deposits so far has represented a further tightening of cash and credit for the Greek private sector, at a time when that sector needs more money to grow to start to ease the pain.
Whose pain? Ah yes, the government’s pain because people aren’t paying it tax for no services. Now if they default and Greece gets the new Drachma, it depends. They will try and tax repatriated funds, and that means no repatriation, or they have an amnesty, and it produces hyperinflation.
May 15, 2012
I’d bet on another temporary fix. The EU is simply incapable of anything else. The voters and politicians won’t face reality and stop believing that governments, national and super national, can fix problems that it has created.
The UK suffers from the same malady. Eventually the real world will deal with the problems and then, possibly, free markets can repair the damage caused by socialism.
May 15, 2012
Actually the problem was caused by capitalism, in the shape of foolish decisions by bankers.
May 15, 2012
Who fixes the problems caused by the free markets, such as the 1929 and 2008 recessions?
May 15, 2012
Fiscal unions do need massive transfers, witness the transfer from south-eastern Britain to the rest of the UK. Germany wasn’t forced into the euro and ministers knew that Belgium and Greece didn’t qualify. Misbehaving states weren’t punished and even Germany broke the rules. The rich euro-members need to help the poorer ones to stay in the project. There’s no mechanism for euro-exit.
May 15, 2012
Above all others the German political elite are responsible for this debacle.
Having read this recent article in Spiegel:
http://www.spiegel.de/international/europe/euro-struggles-can-be-traced-to-origins-of-common-currency-a-831842.html
if I were a judge awarding damages then I’d apportion three quarters of the blame to Kohl and those who supported him, because they knew damn well that Italy should not have been allowed to join the euro, but decided that it should, which opened the door for Greece to blag its way in a few years later.
“Newly revealed German government documents reveal that many in Helmut Kohl’s Chancellery had deep doubts about a European common currency when it was introduced in 1998. First and foremost, experts pointed to Italy as being the euro’s weak link. The early shortcomings have yet to be corrected.”
“The documents prove what was only assumed until now: Italy should never have been accepted into the common currency zone. The decision to invite Rome to join was based almost exclusively on political considerations at the expense of economic criteria. It also created a precedent for a much bigger mistake two years later, namely Greece’s acceptance into the euro zone.”
The Germans above all should pay to sort out the mess that they above all have created, and if it does end up costing them a quarter of their GDP as some are suggesting, then in the words of the Bible:
“For they have sown the wind, and they shall reap the whirlwind”.
May 15, 2012
You sum up the situation well John, but there’s another albeit less likely but more attractive option. That everybody now realises that the EU has been a fiasco from beginning to end, and that it should now be broken up and abandoned in an orderly manner.
Each former member state could still work with each other, but their own parliaments would be master of their destiny, and reflect the views and wishes of the people who elected them. The socialist-biased, highly prescriptive, wasteful, ‘Nanny state’ bureaucracy would be buried. The tax burden on UK citizens would be eased, we would free ourselves from the burdensome yoke of the ECHR, and criminals could once again be given meaningful deterrent sentences. Sweet!
Tad Davison
Cambridge
May 15, 2012
Problems with the euro doesn’t not translate into problems with the EU.
Even if the EU ceases to exist your plan to make national Parliaments ‘master of their destiny’ won’t work because they’ll still be bound by international standards. Also if several European countries band together to create trade blocks the result will be the same as creating several smaller EU’s.
Finally the EU and ECHR are not the same thing. Even without the EU the ECHR will still exist and the UK will be bound by it.
May 15, 2012
Sweet but rather unlikely under Cameron.
May 15, 2012
As George Osborne never tires of reminding us IMF loans are always repaid in full so the obvious answer (to George Osborne at least) must be for the IMF to keep pouring cash in until it all comes good.
We’ve made so much savings thanks to the cuts I’m sure we could improve on our last £11bn, maybe we’re just not giving enough in a similar manner that we’re not borrowing enough to stimulate the economy.
With thinking like this at the top of governments I don’t foresee anything good for the people of Greece in the coming months and years, or the rest of us for that matter.
May 15, 2012
Can he not just lend his own money if he is so confident.
May 15, 2012
A friend who recently returned from a holiday in Greece found that many places would prefer to be paid in Pounds or Dollars than the Euro. As he said, just like many third world countries where they don’t want their own currency
May 15, 2012
I don’t think that makes much sense: what they (the Greeks) are worrying about is euros in their bank accounts being taken away from them. The authorities are most unlikely to seize euro notes, although I suppose it is not totally out of the question, and then they might just as easily seize foreign bank notes as well.
Not everyone behaves rationally in a crisis, especially when they don’t understand what is going on.
May 15, 2012
Of course the Greeks you refer to might be on another cash under the counter tax fiddle.
Use an excuse about worries about the Euro to tell the tourists we take your money (at of course a rubbish exchange rate). The transaction is then not put through the till. Accept Pounds and then go off to a no questions asked Bureau De Change.
Some call this behavior tax fraud.
May 16, 2012
Martin
“Some call this behaviour tax fraud”
Your right, but fraud is also spending money you have little intention or ability to repay, thus the Greek government are to a degree leading by example.
The sad fact is those citizens who are doing the right thing, and acting in the correct manner, are about to suffer most.
May 15, 2012
We are told that the majority of Greeks still want to keep the euro whilst at the same time not wanting to accept the actions demanded of them to secure more bailout cash. They seem to think that they can just renege on financial obligations and agreements with impunity. Clearly they now think that more debt will be written off in order to keep them in this dreadful monetary union into which they should never have been admitted. The problem is rooted in the deceit of politicians and bureaucrats in trying to bring about a political union by stealth. The price of their mendacious duplicity is now beginning to be realised. Our own chancellor doesn’t inspire confidence with his utterings and whatever happens he will find an excuse to borrow more money on behalf of the UK taxpayers to give to the IMF to prolong this debacle.
May 15, 2012
Surely the Greek problem is only the start. Unless Euroland quickly adopts John Redwood’s third option, and moves to fiscal union. But how effective can this be in the longer term, without political union?
I sincerely hope that academics, bankers and perhaps politicians are working at a plan for an Euroland much reduced in size. Or, perhaps, a two currency Euroland. Because, in the long run, the current arrangement is doomed and a complete break up is certain.
May 15, 2012
Looks like we will not be too far behind Greece , the posturing of this government over the last two years is starting to be called to account. See here , from Tullet Prebon
http://www.tullettprebon.com/announcements/strategyinsights/notes/2010/SIN20120514.pdf
May 16, 2012
Thanks for the link. Presumably the deficit/debt figures based on the Maastricht Treaty do not include PFIs and some public pension committments, or the latest ideas on paying private firms for outcomes for prisoners etc. all to be paid by the taxpayer.?
May 15, 2012
You moot the possibility of “….the richer areas accepting their responsibility to send much more money….” but which responsibility is that? There is no such thing. Before talking about “their responsiibility” they should be asked whether they accept such a responsibility…….which they clearly do not. And BTW is there such a thing as an “unhaircut”?
May 15, 2012
A debt default and exiting the Euro do not necessarily go together. When a number of US states defaulted in the early 19thC they did not have to adopt their own currency, they simply defaulted, largely to the cost of London investors. Changing currency would mean that the gerrk government’s debts and employment contracts would be written in drachmas or possibly “Greek Euros”, a currency not in practice 1:1 exchangable with everybody else’s Euro. I find this latter quite likely because it is a fudge that would not involve anybody in Europe making hard decisions.
However, whatever happens I think Grece may have more difficulty quitting the Euro than thought. With millions of tourists, overwhelmingly using the Euro, that currency is going to circulate come what may. Any Greek who can get paid in Euros is going to choose that in preference to drachmas (variant of Gresham’s Law). So the free market will pay in Euros and the state in drachmas. For anybody who believes it is better for employment to be in the wealth creating sector this is not a bad thing.
May 15, 2012
Worth looking at Dominc Lawson’s excellent article in the Independent today re the fate of the euro (also interesting light shone on earlier US predictions of its fate:
“…In fact, it was North American economists who were in the forefront of predicting disaster for the euro (and not just we British sceptics, derided as tweedy “anti-Europeans”)…..”
http://www.independent.co.uk/opinion/commentators/dominic-lawson/dominic-lawson-the-fate-of-the-euro-is-the-chronicle-of-a-death-foretold-7746758.html
May 15, 2012
I think option 2 is most likely – a temporary fix. This is what has happened in the past and will inevitably happen again.
The whole cliff face is made of fudge and some more fudge will be piled on.
May 15, 2012
Michael Portillo made an interesting programme, shown yesterday, in which he met Greeks and, after listening to their plight, asked whether they would rather have Euros or Drachma. All said Euros, mainly because they remember the state of the economy when they used the Drachma and their huge improvement in income when their politicians were managing to distribute large amounts of fiddled Euro cash.
An interesting point was that the state of the Greek economy was so awful because they had debt of about £25,000 per man, woman and child. Horrors! But, according to JR’s blog, the UK will shortly have debt of £100,000 per citizen, if all the PFIs and other debts which have to be paid by the taxpayer are incuded.
But in our case Mr Moral can appoint some independent economists to the BoE and they can just ‘print’ it. Banks can be reined in to balance the money supply and the only people to suffer will be SMEs and savers.
In the case of Greece, perhaps they could change to an independent Greek Euro. Calling it a Euro would cover up the U turn, and then they could adopt the British fiddle. The ECB could print enough to compensate the French and German banks. And we could all enjoy a cheap Greek holiday again.
May 15, 2012
The whole Greek conundrum is just smoke and mirrors, we all know what will happen-nothing. At the last minute a deal will be done and Greece will remain in the eurozone and the euro and nothing will change. The overiding view on this website is for the eurozone to disintegrate and for the euro to collapse as I have stated previously be careful what you wish for. Remember the majority of Greeks want to stay in the euro and they are the majority. There is a lot of scaremongering at the moment about euro armageddon-the worst never happens, so calm down, Greece will still be in the euro after the storm. subsides.
May 15, 2012
I have some very good Greek friends; wealthy middle class, and their view is that rejection of the austerity package is the end game. C’est tout. Maybe the politicians think likewise. Just what one might expect. What next? Not their problem.
Fascinating attitude. No money, can’t pay Civil Servants or pensioners; default. Not too good for the Euro image, is it having a Euro member in such a mess when the whole idea is they all pull together to ensure a strong and stable currency?
Pity Cameron can’t see all the good reasons why we should pull out of the Germaan club altogether and to erect a statue to Gordon Brown in Parliament Square for keeping us out of the Euro.
Only joking..
May 15, 2012
Meanwhile EU “enlargement” continues apace in the Balkans at the moment. The EU will continue rigidly on its course of enlargement, even as the entire corrupt edifice teeters on the brink of collapse.
May 15, 2012
http://www.dailymail.co.uk/news/article-2144486/Referendum-EU-needed-warns-Balls-Europe-crisis-rages-on.html
The penny is dropping – will Cameron see it in time and will the electorate believe another cast iron pledge from him?
May 15, 2012
If Greece returned to the Dracma and devalued then holidays would be so cheap there that we would flood in. The economy would return to the pre EUSSR situation.
May 15, 2012
Given how expensive it would make their imports, such as oil, the situation will get worse not better. Also the cost of travelling to Greece and the amount of time it takes to get their will still be the same so don’t expect there to be too many additional tourists.
May 16, 2012
Costs such as oil would be the same to oustiders. It is the add on costs that are generated within the country that would be reduced and make holidays and produce cheaper. Just like they used to be.
May 16, 2012
If Greece leave the euro and uses the drachma, and the drachma devalues by 50% then this will make all imports twice as expensive. So the price of petrol in Greece will double.
May 16, 2012
Uanime5, more visitors will mean cheaper air fares and greater economic activity to pay for increased prices for imports.No doubt that it will be a cheap holiday centre nor that it will be a hard time for all however prior to the EU, horses and carts were not an unusual sight.
May 16, 2012
The air fares will only be cheaper if most flights to Greece weren’t full. So if a plane goes from 50% full to 90% full there will be a large reduction in cost per person, however if the plane goes from 80% full to 90% full the reduction in cost per person will be much smaller.
There’s no guarantee that there will be greater economic activity or that it will be sufficient to make up for the increased price of imports.
I doubt that most people want to go on holiday and have to get around using a horse and cart.
May 15, 2012
Backroom deals, negotiations and temporary fixes will put it of for a while whilst shading a little more of the debt. This will continue for another decade until all the debt has magically disappeared and the Governments, Banks and ECB will congratulate themselves on the miracle of producing billions of Euros from nothing, and destroying the same Euros just by handing worthless pieces of paper around. It’s all a financial game, just made up numbers, and imaginary worth.
May 15, 2012
This confirms what Michael Portillo’s TV programme showed – live interviews in Athens and other Greek locations, in Leipzig, Frankfurt and Berlin. The Greeks want to stay in the Euro but don’t want the austerity. The Germans in principle want the Greeks to stay in the Euro but want to contribute no more towards their deficits and debts.
These positions are totally irreconciliable. The Greek position is simply insane. The German position is merely impractical. It seems that we must await fresh Greek elections, preceded by a constant diet of French fudge before matters are resolved.
Let Germany and Greece both leave the Euro and dump the whole mess in France’s lap.
May 15, 2012
Why is it that Mr O does not inspire one when he talks about economies, including ours. We are not in the eurozone so why is he there? It must be to lend more money to them. That goes against all this countries wishes, does it mean more debt for us to repay? What folly they do in the name of democracy. The truth is all the eurozone members of the 25 are living a pipe dream, with no substance to back them up. Germany won’t back them up if it means danger to themselves; if it had been a safe option they would have done it well before now. Iceland faced the same difficulties and survived and went along alone, that should be enough for Greece to understand, as did Agentina some years ago. There is life after the euro and to suggest there isn’t is silly, and Vince Cables analysis today is far fetched. The Lib Dems see their beloved Euroland crumbling before their eyes and they can’t believe it. We now will need a man of steel to take this country through the next phase of this disruption, is Cameron the man? He would be if he hadn’t the mad LD on his back. I don’t care what happens to the eurozone, let it fall, we are better off without it, its and expensive club we can no longer afford. We will survive we’ve seen worse, but we need politicans who will give us the right to choose, and not dicate. Now that is the challenge.
May 15, 2012
Ancient Greek democracy worked by the people attending huge public gatherings to be addressed by orators, then coming to a decision.
Attendeance was intended to be compulsory. Pairs of men roamed the streets, each pair carrying a rope that had been dipped in orange paint. Anyone who hadn’t attended the meeting had his toga branded with this paint. These non-attenders were later mocked by their fellow citizens and referred to as ‘idiotes’. This is the ancient origin of the modern word idiot.
If only there were fewer modern Greeks, it might be a good idea to revive the ancient tradition.
May 15, 2012
Interestingly it will be a bit like personal bankruptcy.
Avoid the issue and have the creditors slowly dervour all of your asssets together with your income to the point where you are unable to afford food or facce up to it, go bankrupt and throw off the demands of your creditors and preserve the main paart of your income for the matter of day to day living.
Clearly Iceland took the hint and I would think Greece might do likewise although, she should be mindful of the state of affairs that existed before the Euro.
May 15, 2012
“It seems most likely we are in for another round of brinkmanship and temporary expedients. ”
Mr Redwood, I think that you are ‘spot on the money’
The EC could not plan a proverbial in the brewery,
May 15, 2012
I’m not sure how Greece could be stopped from continuing to use the euro as its currency, the only currency with legal tender status within Greece.
And I’m not sure how the Greek national central bank could be stopped from lending the Greek government as many euros as it needed to pay its bills; it would only take keystrokes to do that.
Of course it would be totally illegal under Article 123 TFEU in the EU treaties, but so what?
It would just be another breach of the EU treaties in a long series of breaches of the EU treaties committed by EU governments, so let he or she who is without sin cast the first stone.
May 15, 2012
If Osborne commits another Billion Pounds as suggested he could in todays Daily Express then his education was wasted as me with four O Levels can see it is just money down the drain along with the other Billions he has given of our hard earned money taxed to the hilt to bail out feckless Greeks. Surely to be followed by Spain, Portugal, Italy and Ireland. Enough is enough.
May 15, 2012
(Suggests more GReeks will withdraw their Euros from banks -ed)
May 15, 2012
Unless the Greeks are prepared to accept EU austerity they shouldn’t expect any more bailouts from the EU. I suspect the Greeks won’t do anything until the last moment when the consequences of going bankrupt and leaving the euro become very obvious.
May 15, 2012
I am having trouble getting a comment of mine posted – it referred to the article by Dominic Lawson in the Independent today. Could you explain if there is a problem, Mr Redwood? It is on topic, not controversial, it is relevant, and D Lawson is highly reputable. I firts tried to post it mid morning. Your help/advice would be appreciated.
May 15, 2012
Good speech and no notes – unlike the shadow spokesman – but it is worrying that this “we want growth and you want austerity ” mania has taken off. It reminds me of the “we want peace and you want war” unilateralism in the eighties. That was a tough one to defeat but at least the US president and the French were on board then.
May 15, 2012
Clearly option 2 is most likely. Once you are in the Euro, there is no effective mechanism to get you out (there was never intended to be one anyway)….The Greeks know this full well and will happily stay in the Euro knowing full well that they will be bailed out one way or the other, because the EU do not want to let them go, because they know that it would cause the other PIGIS to leave relinquishing their debt and busting a few European banks….The Greeks know how to play this one.
zorro
May 15, 2012
Of course, none of this common sense will stop Gideon pouring money doen the PIGIS drain……Cuts at home so that he can waste it abroad….that’s bound to go down well.
zorro
May 15, 2012
Given that all possible outcomes are bad, possibly the least bad might be Greece withdrawing after the coming election from the EU and Eurozone, and in return being given a Marshall Plan by way of a golden goodbye.
May 16, 2012
Too much thinking – Greece has already defaulted in 1932 – no-one got involved. JUST DO IT.
Like the EU. Don’t think about leaving it – JUST DO IT.
May 16, 2012
Mr Redwood,
Is the following true when applied to any European Economy:
In order to have more money, we need more Debt,
In Order to have less debt, we reduce our money supply ?
You have suggested Greece defaults and goes back to the Drachma, Simon Dixon Agrees with you.
http://www.positivemoney.org.uk/2012/05/three-simple-solutions-for-greece/
May 16, 2012
The only way Governments can get out of debt and allow it’s population to reduce it’s debt is by issuing currency rather than Treasury Bonds.
The Reason why “There is a paralysis in decision making at the heart of the zone” is because Politicians are being spoon fed Economic Rubbish about how Money, Debt, Credit and Banking works in an economy. There is an epidemic of ignorance amongst Politicians, the Public, Media Outlets and neo-classical Economists.
Here’s an example of how Robert Peston (BBC Business) believes Banks Work:
“How do banks work?
Banks are the great conjurors. They take our money because they persuade us that putting money in the bank is safer than hiding it in a sock or under the mattress. But here’s the great trick. They don’t keep it in the bank, they lend it out. So if we wanted our money back at the same time, we couldn’t have it. To help make sense of this, I am going to set up my own bank, Pesto Bank. ”
http://www.bbc.co.uk/programmes/p0073l69
Magic has been associated with how Banks lend money but not in the way Robert Peston says. A Bank can lend money even when it does not have any money as all it need do is add numbers to someones digital Bank Deposit, while at the same time add this as a liability to it’s ledger.
A Bank Loan of £1000 creates two addtions:
A £1000 added to it’s Assets and
A £1000 added to it’s Liabilities.
This is how it’s accounts are balanced, even though it didn’t have the £1000 to start with.
Capital Reserves are not needed to make loans, they are used in the day-to-day cash transactions of customer requirements.
Banks are NOT intermediaries as Robert Peston seems to think.
Lending (M4, created by Banks) can and does lead Base Money (M0, created by Government).
The ICB Recommendations are not going to protect us from the next Crisis. Mervyn King is already preparing us for the next one.
MONEY = DEBT
DEBT = MONEY
Unless the Government uses it’s authority to issue currency directly. Please try and understand this, I’m not making it up (unlike Robert Peston).
If anyone thinks that the above statements in this comment are incorrect, please add a reply to this comment. If I have missed something I would appreciate your thoughts.
May 16, 2012
Did Speculators affect Greece’s Debt Crisis ?
“Kiriakos Tobras: The Greek Sovereign Debt Financial Scam”
“The file is claiming against fraudulent Speculators who, by running an organized criminal plan, they manipulated the Greek Government Bonds Market, with the intent to perform multiple financial profits, deceiving and damaging Greek National Economy and Greek Citizens and Taxpayers wealth.”
Reply: If people do behave criminally in markets they should be prosecuted. They are innocent unless and until proved guilty. Looking at Greek state finances it is difficult to believe the main problem was the actions of speculators. Many in the markets decided Greece was not a good risk to lend to. They turned out to be right, as the Greek state reneged on some of its debts.
May 18, 2012
A country that issues Treasury Bonds (where Treasury Bonds – apart from Taxes) are the only way for the Government to add money to the economy are at a massive disadvantage compared to the Banks that buy these Treasury Bonds. Why Politicians are not discussing the Issuance of Currency directly instead of Treasury Bonds is a mystery.
As to why Criminal acts are not prosecuted when they cause so much mayhem is also a mystery. You would have a better insight into why Governments are so reluctant to prosecute blatant Fraud than I.
(raises issue of advice offered to Greek government to create off balance sheet liabilities. – surely the politicians who sought and paid for the advice are to blame, not those who sold them the best argument/mechanism they could come up with within the law?)
Governemt’s could pass laws giving them the right to create and issue a Nation’s money instead of borrowing money created by Banks. The System is at Fault. Where do you think money comes from?
May 19, 2012
“(raises issue of advice offered to Greek government to create off balance sheet liabilities. – surely the politicians who sought and paid for the advice are to blame, not those who sold them the best argument/mechanism they could come up with within the law?)”
NO, that’s not what I meant.