Published daily by the Lowy Institute

Greece and the nattering nabobs of the Anglosphere

Greece and the nattering nabobs of the Anglosphere
Published 30 Jun 2015 

English is, fortunately, the global lingua franca. Thus, comments on current events made in English are the final arbiters for most of the world. This is mostly for the good but can misfire. Where the EU is concerned, the nabobs in London, Washington and elsewhere in Tony Abbott's Anglosphere don't get it, as shown by recent comments on events in Greece and on Germany's role in Europe.

No soccer match, tennis game or golf play-off would ever dare to go into the number of prolongations we are all exposed to by the interminable tragi-comedy of Greece vs Europe. At the time of writing, Greek banks are closed but the final outcome is still far from clear. We don't know if there will be a clear cut 'Grexit', the much discussed exit of Greece from the euro. What will certainly ensue, however, is a prolonged period of muddling through, with severe capital controls and budget policies.

Since the beginning of the prolonged negotiations between the present Greek Government and the 'troika' (the European Commission, European Central Bank and the IMF), there have been three main reasons why too much leniency for Greece (including a debt 'haircut') was impossible.

First was the fear of precedent. A European backdown on Greece would have been intolerable for other European countries that had already swallowed bitter budget medicine, mainly Ireland, Portugal and Spain.

The second reason was the presence on the Greek side of a government coalition of populist, far-left and far-right parties such as are on the rise in practically every European country. Massive illegal immigration and violent extremism are severe enough problems for Europe. To hand an easy and undeserved victory to such a coalition would simply make those problems worse. The third factor was the Tsirpas Government and how it used its newly gained power. A recent comment by Christine Lagarde, not normally a fiery orator, says it all: 'Let's have a discussion among adults.' What was unsaid but painfully obvious: '...and not with a bunch of vainglorious adolescents without neckties but full of ill-applied game theory and macho hot air.' [fold]

Europe, and particularly Germany, still prefers to keep Greece within the Eurozone, but Greece represents around 2% of the economic weight of the Eurozone, so Europe can live with Greece going back to the Drachma, and eventually to economic hell. The poor in Greece would be the main victims, not the country's rich and powerful. That includes the present government, which still does not see that the only way back to prosperity is deep structural and fiscal reforms. 

Reports from two FT columnists — one on the necessary death of the Euro, made obvious by the Greek drama; another on the ideological damage which the 'Grexit' will do to the very core of the EU concept and thus of the European soul — are at the very least premature. Even a keen observer like Gideon Rachman, for all his experience, has got it fundamentally wrong for once.

The Eurozone is not a monetary union such as we have seen before but an economic reaction to the fact that the EU some time ago become one large manufacturing and service-providing area made up of countless cross-border value chains. An area-wide currency provides for a level playing field for suppliers and assemblers regardless of national borders. Contrary to what is often claimed, the political decision to create a single currency (and with it a common banking, regulatory and eventually fiscal union) followed economic reality rather than leading it. As a result, national sovereignty was transferred for the greater good of all. (This is of course anathema to nationalists all over the EU, yet the idea that the UK prefers to opt out of full European integration continues to baffle observers on the continent. After all, Britain without Europe is just an island adrift.)

Germany provides another example of this basic failure in Anglosphere understanding of what today's Europe is all about. A recent article by none other than former Fed Chairman Ben Bernanke serves as a telling example. As a citizen of a federalist country, Bernanke should know better. He treats Germany's trade surplus as a national phenomenon, easily fixable by national decisions if there is political will to do so. But German exports, very much including the products of its vaunted car industry, are an amalgamated product of European economic value chains involving goods and persons from various European countries, not all necessarily researching, planning, assembling and selling in the countries they were born in. The ensuing exports happen to be counted as German exports, mainly because trade statistics have not yet found a way to reflect this complex reality.

Consequently, Bernanke's specific propositions to remedy the German surplus fall short. Investment in public infrastructure in Germany will increase in any case, if only because the last generation of infrastructure, thrown up somewhat hastily after World War II, is coming to the end of its life. Spain has built excellent public infrastructure over the last 20 years (albeit with too-cheap money and in parts excessively). This is a boon to anybody traveling or transporting goods there, and will allow allocation of funds elsewhere for decades.

In short, traditional national remedies in economics (and in areas such as immigration, education and research, and energy) simply cannot be applied in today's Europe. So much the better. As we all know (and this includes the wise wags from the Anglosphere), Europe can only master its big challenge with one economy and one currency. What is that big challenge? To remain fully in charge of its future in a world no longer centered on  transatlantic relations but on  the Asia Pacific.

Photo by Flickr user Theophilos Papadopoulos.

You may also be interested in