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As the crisis in Europe deepens and casts its shadow across the world’s
financial markets, the debate over the future of the euro – more
correctly, over the European Monetary Union that is represented by the
euro – becomes more intense. Many economists, on both sides of the
Atlantic, now claim to have warned that the EMU project was doomed from
In some cases, this claim is true. But that’s of little consequence
compared to the overriding issue of whether the substance of the
warning is valid; in other words, is the euro doomed?
The answer you get depends a lot on the prism through which you look.
If your vantage point is financial, or even simply accounting, then it
is all too easy to come to the conclusion that Greece is a basket case,
effectively unsalvageable because it is fundamentally insolvent.
An essential condition for reviving the Greek economy is to restore the
country’s monetary autonomy by giving it back its own currency and
interest rates. That way, it can follow a path suitable for its own
extreme needs, rather than remaining straitjacketed in a framework in
which it is a marginal player.
It seems fair to say that the financial markets are now convinced that
Greece must default and restructure its debts. This conviction is
tempered by the determination of the rest of the EU, as well as the
IMF, to stand behind Greece and support it with as much money as is
necessary to prevent a default. (The price tag has quadrupled in the
last two weeks but, at €110 billion, is still considered too low by the
bond markets, which continue to dump Greece debt.)
But the conviction remains that the end result will be a Greek default,
because in the giant poker game under way, if the EU doesn’t fold over
Greece, the markets will move on to Portugal, Spain and other weak
countries and drive up the overall cost of support to levels that even
the entire EU will find hard to accept.
This is a valid, but narrow, way of looking at things. It gives a
heavier weighting to the financial aspect than the economic one, which
is surely putting the cart before the horse. Even from a purely
financial viewpoint, it is clear that the EU needs to support Greece to
prevent “contagion” and thereby defend the euro and EMU structure. To
this end the Europeans are forcing Greece to accept very draconian
conditions that will cause the Greek populace great pain and ensure
that the Greek economy suffers massive damage.
Funnily enough, instead of swallowing their medicine gracefully, the
Greek people are seriously unhappy about the fate being imposed on them
and are rampaging on the streets of Athens. The mainstream media
present the demonstrators as barbarians and the EU/ IMF bureaucrats as
saviors, whose good intentions are being spurned and good work thwarted
by the Athenian mob.
This highlights the interplay of economics and politics. The original
concept of the “polis” – the very terminology we use in this and other
debates is Grecian! – envisaged a political entity ruled by its body of
citizens. That is the opposite of the case in Greece today, as it is
not the case in Ireland and will soon not be the case in other small-
or medium-sized European countries.
The leadership of these countries is part of the European leadership
elite, whose headquarters are in Brussels, Frankfurt and Luxembourg. As
the crisis intensifies, the populace is increasingly in revolt against
In Greece, the ostensible source of the friction is economic policy,
but the real substance is whether the economic policy being adopted in
Greece serves the best interests of the Greek people or is mortgaged to
the interests of Greece’s paymasters in Brussels. Ireland is no
different – except that the Irish tradition is not to riot and burn but
simply to emigrate.
Yet the historic record of countries undergoing severe crises – for
instance, Israel in the mid-1980s – is that they can recover, and quite
quickly at that. The essential condition for this to happen is that
there be a political consensus over what needs to be done, which has
the support of all the main political parties and social groups in the
A current example of this actually happening seems to be Latvia, where
the people are prepared to swallow a fierce austerity package rather
than fall back into the maw of the Russian bear. But it is not
happening in Greece, at least so far, presumably because the incentive
to wear a hair shirt for several years is lacking there.
These examples suggest that even politics, in the narrow and short-term
sense of the term, is not enough to explain how severe crises play out
and whether countries come out of them severely weakened or, after
suffering through them, strengthened both socially and economically.
What really matters are fundamental issues of cultural identity and
national pride: the kind of stuff that bankers who can’t see farther
than their excel sheets and economists bound by theories of rational
behavior simply cannot relate to and hence find easier to ignore.
But in Europe, where historical memories are measured in centuries and
most peoples’ identities extend over millennia – without which
countries like Greece simply wouldn’t exist – these are the bedrock
At least they are in countries, such as Greece, which are still
ethnically and culturally homogeneous. As demographic trends eat away
at the racial and cultural core of many European countries, even the
bedrock may collapse. But what’s for sure is that the current noise
about money and markets is just the most superficial and external level
of what this crisis is really all email@example.com