After Greece, where now for the eurozone?

Time to look at the deep mechanical flaws in the euro's design.

It is by no means the end of the modern Greek tragedy, but the conclusion of the second €130bn bailout for Greece must mark a line in the sand.

Will the latest bail-out deal work? It is possible, but as the EU/ECB/IMF Troika made clear, it will be a long and bumpy road. But there is not much alternative.

Greece is, to all intents and purposes, insolvent. Agreement on the bailout package had to be reached because €14.5bn of debt repayments need to be made next month and Greece didn't have the cash to do it.

There are some who cling to the idea that a default and a swift return to the drachma would solve all ills, making Greece's exports cheaper and attracting tourists. If it were that simple, then it would already have happened. Unfortunately, there is no economic magic potion for a country so deep in debt and recession.

Were Greece to go into a disorderly default it would be required to pay upfront in cash for all its imports -- impossible for a country with such an acute cash flow crisis. Drachma and devaluation would simply see the Greek banking sector collapse and the country saddled with a worthless currency. There is no silver bullet.

One thing which goes without saying is that the eurozone, and the EU as a whole, have been badly fractured by the Greek crisis. Just as there is fury on the streets in Athens, there is also fury among other EU governments, particularly among the northern member states, about the statistical frauds committed by Greece and their government's failure to live up to their promises to cut their budget deficit.

The result is a toxic mix of reform fatigue in the south, and support fatigue in the north. More perniciously, the nastiest and crudest national stereotypes have returned replete with lazy, corrupt Greeks and talk of a "Fourth Reich".

Indeed, very few actors come out of the Greek crisis well. Certainly not the Greek political class which presided over statistical fraud and a corrupt system of public administration, although it seems likely that the Greek people will take their revenge at the April general elections where the historically dominant centre-right and left parties are set to be routed. Not the north European countries, who spent two years pig-headedly insisting that eye-watering interest rates and savage spending cuts should be attached to any rescue package, and then wondered why it was that the Greek economy fell deeper into recession and the debt burden soared.

Two years ago, months after the scale of its budget deficit had been unmasked, Greece's debt to GDP ratio was 140 per cent. Even with the first bailout deal and billions of euros of assistance from the European Investment Bank, the debt pile has now risen to 160 per cent.

The dust has to be allowed to settle now. The Greeks need to get on with the austerity programme they have committed to, and the German and Dutch nay-sayers must allow them to get on with it without any further humiliation. The eurozone must stop obsessing about the Greek crisis and address the systemic problems which still face it.

In many respects, the Greek crisis has diverted attention from the deepest mechanical flaws in the euro's design. It has allowed the conservative politicians who currently dominate the EU to establish a narrative of the debt crisis that regards all problems as the result of feckless overspending governments and lazy workers in Club Med, and that "structural reforms" -- for which read liberalising labour markets and reducing social protection - are the only way forward. If every country can be like Germany or the Netherlands then voila: problem solved. This approach is embodied in the Merkozy-inspired "fiscal compact" treaty.

This is utterly misguided and self-defeating. For one thing, all the evidence, from Greece, to Ireland and Portugal, and the rest of the EU, indicates that austerity programmes are doing nothing to reduce government debt and balance budgets. The diet of economic bread and water has, in most cases, actually weakened the patient. The EU urgently needs a growth and jobs strategy.

More profoundly, politicians must acknowledge that while budgetary discipline and more productive labour markets are important, they will not prevent the gap between the eurozone's richest and poorest stretching beyond sustainability.

For the eurozone to work effectively there will need to be a formal system of credit transfers to redistribute a bit of wealth from north to south.

Talk of credit transfers is -- like joint liability Eurobonds -- an anathema to the north Europeans, but it is a reality that must be faced. In a currency union with a single market, it is neither desirable nor possible for all countries to be like the member states in the virtuous north, with their current account and export surpluses.

The truth is that the north Europeans need the Club Med countries, more than vice versa, to buy their goods.

Up until now, the debt crisis has been about emergency resolution. With Greece now brought away from the depths of the economic abyss, and the fear of contagion to other countries slightly reduced, the eurozone should move away from crisis management to taking steps to ensure that the current crisis does not repeat itself. EU leaders should not kid themselves or their domestic electorates that labour market reforms and rules on budgetary discipline are the magic cure.

Without a growth strategy and an acceptance that the north-south economic divide cannot be entirely bridged, the current crisis will repeat itself.

Ben Fox is chairman of GMB Brussels and political adviser to the Socialist vice-president of economic and monetary affairs.

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Labour must unite idealists and nativists to beat Ukip

The party has no coherent economic policy, says Labour donor John Mills. 

The heart of the dilemma faced by Labour is that, by and large, its working-class supporters think that you should look after your own first and everyone else afterwards, while its more idealistic middle-class supporters don’t share these nativist views. Add to this the fact that the Labour party nowadays is more middle class, more internationalist, more public sector-orientated, more metropolitan, more intellectual and less interested in winning elections than it has ever been before, and you can see why Ukip is a huge potential threat.

Ukip started by attracting mainly disaffected Conservative voters who thought their party was weak on the EU and who didn’t like David Cameron’s liberal approach to social issues. More recently, especially during the EU referendum, Ukip picked up a huge amount of Labour support. Of the 9.3m people who voted Labour in the 2015 general election, close to 3.5m of them voted for Leave – and half of these people say they are not going to vote Labour in future. Where are they going to go?

The crucial issue is whether Ukip, having gone through all its recent traumas, will get its act together to scoop up these footloose voters. Up to now, the glue which has held Ukip together has been hostility to the EU and distrust of the political establishment. It has lacked coherent policy. This leaves Ukip still essentially a protest operation rather than as a potentially governing party. But this could change. 

With Labour now increasingly idealistic rather than nativist, Ukip may pull together a string of policies that promise support for working-class solidarity, immigration restrictions, social conservatism and a reindustrialisation plan – very much the platform which won Donald Trump the US presidency. Such a manifesto could attract sufficiently widespread working-class support to make large numbers of Labour seats vulnerable. Ukip came second in 120 constituencies during the 2015 general election. There doesn’t have to be a very large swing for Ukip to start picking up enough seats to make the prospect of a future Labour government more and more remote.

Faced with this prospect, what can Labour do? Three key strategies suggest themselves. One is to avoid alienating potential Labour supporters by trying to persuade them that they should have voted Remain. On the contrary, the party must clearly accept the referendum result, and fight hard and constructively towards getting the best possible Brexit deal. 

Second, Ukip is weak on economic policy. It is all very well to promise reindustrialisation and better jobs, but how is Ukip going to fulfil them? Populism shades very easily into protectionism. There is a principled case for open markets to produce more prosperity - but this may only be possible if there are also changes to monetary and exchange rate policy to avoid unmanageable commercial competition. Ukip may, like the Labour party, find this a hard case to make.

Third, Labour needs to change its tone. There needs to be less talk of abstract universal values and more of concrete steps to improve people’s lives. Labour must celebrate working-class attitudes to self-help, trade unionism, mutual support, patriotism and solidarity. The party must build on the huge influx of members, not least because they are the cadres for the future, but it also must avoid alienating old supporters with many years of experience and commitment. It is up to the party leadership to create such a change.

As it stands, too many Labour people are still trying to derail Brexit. The party has no coherent economic policy and it still looks too London-centric, divorced from its working-class roots. Not a good place to be if Ukip pulls itself together. 

John Mills is a businessman and a Labour donor. He founded the group Labour Leave ahead of the EU referendum and has recently published the pamphlet "Why Trump Won"