“They seem to want to push to kick Greece out of the common currency”

After 15 hours of talks the Greek government seems to have accepted defeat and accepted the demands of the eurozone for more austerity, “Greece has offered an almost unconditional surrender on its bailout, but Germany might not accept anything less than a Carthaginian peace. In other words, a deal that not only forces Athens to submit, but also humiliates it in the process. This latest melodrama, playing out in Brussels as European finance ministers meet to discuss whether or not to approve a new Greek bailout, appears so nonsensical that it can be hard to believe these people are deciding the future of Europe. Although you wouldn’t know it from the headlines, the truth is that Greece and Europe have been close to a deal for awhile now. Both sides agreed about how much austerity Athens should do, but disagreed about how Athens should do it—at least until last Thursday. That’s when Greece came up with an offer that was not only nearly identical to Europe’s, but also to the one its people had just rejected in a referendum. French President François Hollande, whose government helped put the proposal together, called it a “serious” and “credible” one. At the very least, it seemed like the basis for new negotiations”.

The writer adds, “But maybe not. The problem is that Greece’s economy is in so much worse shape now than it was even a few weeks ago that the tax hikes and spending cuts, which would have produced a 1 percent budget surplus before, won’t anymore. That’s what happens , after all, when the European Central Bank pulls enough of the plug on your banks that they have to close their doors for now to avoid having to close their doors for good. Businesses can’t get the credit they need to, well, stay in business, and will then default on the banks that are about to go out of business themselves. The entire economy, in other words, shuts down. And that’s why Europe estimates that Greece would actually need an 82 billion euro bailout—with 25 billion of that going to its banks—instead of the 53.5 billion euros Athens is asking for. So Greece would have to do more austerity than Europe wanted before to get more money than Europe was offering before”.

Crucially he writes that “If, that is, Europe is even offering Greece any money anymore. It might not be. The simple story is that Germany and the other hardline countries don’t trust Greece’s anti-austerity Syriza party to actually implement, well, austerity. And so rather than coughing up another 60 or 70 or 80 billion euros, they seem to want to push to kick Greece out of the common currency instead. That, at least, was the plan that leaked on Saturday. And now it’s part of the actual plan on Sunday. Indeed, it’s tentatively been included in the European finance ministers’ latest joint statement. This isn’t just what Germany is considering. It’s what Germany is trying to get the rest of Europe to go along with. Under the plan, the only way Germany would let Greece stay in the euro now is if it sells 50 billion euros of “very valuable Greek assets,” allows international observers to monitor its bailout, and puts automatic spending cuts in place in case it misses its deficit targets. Otherwise, Germany wants Greece to take at least a five year “timeout” from the euro, during which time its debts could be restructured and it could receive humanitarian aid. The entire proposal was less than a page long”.

The sheer lunacy of the economic project of Germany is noted when he writes that “In case there was any doubt, this is an offer Greece can’t accept. Sure, selling assets would lower Greece’s debt today, but it would make the rest of Greece’s debt harder to pay back tomorrow—which, according to the International Monetary Fund, is already unpayable. It’s the kind of thing you ask for if you want Athens to say no. But does that mean Germany really wants to get rid of Greece or is this just a ploy to get more concessions out of Greece? Yes. The problem is it’s hard to know what Chancellor Angela Merkel really wants. Up till now, she’s been willing to do whatever the least is to keep Greece in the euro, but her finance minister Wolfgang Schäuble has been pushing her to give them the boot. That’s let them play a pretty effective good-cop, bad-cop to get the most out of Athens, but this time that’s turned into bad-cop, worse-cop”.

He ends “If Greece does leave the euro, though, it will only be temporary in the sense that all life is temporary. Bringing back the drachma would either be such a boon to Greece’s economy that it’d never want to go back to the euro, or be such a disaster that Europe would never want to invite it back. But in either case, Greece and Europe’s trial separation would turn into a divorce. That might actually be better for Greece now that it’s already gone through a lot of the pain of ditching the euro—like a financial crisis—but it could be a catastrophe for Europe. It wouldn’t just show that countries can leave the euro, but maybe that countries have to leave the euro to recover. So the next time an anti-austerity party wins power, it might decide to do the same, at which point the euro zone would be more like a northern euro zone, if that. Especially if France decides that this makes the euro not worth saving anymore”.

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2 Responses to ““They seem to want to push to kick Greece out of the common currency””

  1. Order and Tradition Says:

    […] superb Daniel Altman examines the economics of the recently agreed deal between the EU and Greece, “oes Greece’s latest bailout proposal, now accepted by the Greek […]

  2. Merkel’s ideological view | Order and Tradition Says:

    […] bad press comes at a sensitive time. Merkel’s position toward the Greek bailout deal has drummed up criticism in Europe and farther afield for being not just overly demanding but also unrealistic. As the various sides […]

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