Greece and the euro Crisis revisited
The euro is still vulnerable, and Greece is not the only problem
Dec 13th 2014 |
IT WAS almostexactly five years agothat the euro crisis erupted, starting inGreece. Investors who had complacently let all euro-zone countries borrow at uniformly low levels abruptly woke up to the riskiness of an incompetent government borrowing money in a currency which it could not depreciate. There is thus a dismal symmetry in seeing the euro crisis flare up again in the place where it began.
The proximate cause of the latest outbreak of nerves was the decision by the Greek
government, now headed by the generally competent Antonis Samaras, to advance the
presidential election to later this month. The presidency is largely ceremonial, but if Mr
Samaras cannot win enough votes in parliament for his candidate, Stavros Dimas, a general
election will follow.
Polls suggest the winner would be Syriza, a populist party led by Alexis
Tsipras. Although Mr Tsipras professes that he does not want to leave the euro, he is making
promises to voters on public spending and taxes that may make it hard for Greece to stay.
Hence the markets’ sudden pessimism.
As it happens, there is a good chance that Mr Dimas, a former EU commissioner, will win
the presidential vote at the end of this month (see article). But the latest Aegean tragicomedy
is a timely reminder both of how unreformed the euro zone still is and of the dangers lurking
in its politics.
It is true that, ever since the pledge by the European Central Bank’s president, Mario Draghi
in July 2012 to “do whatever it takes” to save the euro, fears that the single currency might
break up have dissipated. Much has been done to repair the euro’s architecture, ranging from
the establishment of a bail-out fund to the start of a banking union.
And economic growth
across the euro zone is slowly returning, however anaemically, even to Greece and other
But is that good enough? Even if the immediate threat of break-up has receded, the longerterm
threat to the single currency has, if anything, increased.
The euro zone seems to be
trapped in a cycle of slow growth, high unemployment and dangerously low inflation. Mr
Draghi would like to respond to this with full-blown quantitative easing, but he is running
into fierce opposition from German and other like-minded ECB council members (see
Fiscal expansion is similarly blocked by Germany’s unyielding insistence on strict
budgetary discipline. And forcing structural reforms through the two sickliest core euro
countries, Italy and France, remains an agonisingly slow business.
Japan is reckoned to have had two “lost decades”; but in the past 20 years it grew by almost
0.9% a year.
The euro zone, whose economy has not grown since the crisis, is showing no
sign of dragging itself out of its slump. And Japan’s political set-up is far more manageable
than Europe’s. It is a single political entity with a cohesive society; the euro zone consists of
18 separate countries, each with a different political landscape.
It is hard to imagine it living
through a decade even more dismal than Japan’s without some political upheaval.
Greece is hardly alone in having angry voters. Portugal and Spain both have elections next
year, in which parties that are fiercely against excessive austerity are likely to do well.
Italy three of the four biggest parties, Forza Italia, the Northern League and Beppe Grillo’s
Five Star movement, are turning against euro membership. France’s anti-European National
Front continues to climb in the opinion polls. Even Germany has a rising populist party that
is against the euro.
It’s the politics, stupid
Indeed, the political risks to the euro may be greater now than they were at the height of the
euro crisis in 2011-12. What was striking then was that large majorities of ordinary voters
preferred to stick with the single currency despite the austerity imposed by the conditions of
their bail-outs, because they feared that any alternative would be even more painful.
that the economies of Europe seem a little more stable, the risks of walking away from the
single currency may also seem smaller.
Alexis de Tocqueville once observed that the most dangerous moment for a bad government
was when it began to reform. Unless it can find some way to boost growth soon, the euro
zone could yet bear out his dictum.