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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How the Brexit campaign lied to us – and got away with it

The Leave camp promised us all a unicorn and now claim they merely hinted at the possibility of a pony.

Whenever something cataclysmic happens in politics, there’s a temptation to trace it back to a single moment that set everything in motion: the shot heard around the world. Or, in the case of the night in the Commons bar where Eric Joyce lamped a fellow MP, prompting a fishy by-election in Falkirk that led to a fundamental reform of the Labour party rules, which enabled the election of Jeremy Corbyn, the punch that changed politics.

You can’t always identify the flap of the butterfly’s wings that creates a hurricane. The EU referendum result was driven by many factors: class, geography, differential turnout, culture and education. Even the broad conclusions – more older voters turned out and they were heavily pro-Brexit; cities went for Remain – must be qualified: why was Liverpool a win for Remain while Sunderland picked Leave?

If there is one sentence that explains the referendum result, though, it’s this one from the website of the Advertising Standards Agency. “For reasons of freedom of speech, we do not have remit over non-broadcast ads where the purpose of the ad is to persuade voters in a local, national or international electoral referendum.” In other words, political advertising is exempt from the regulation that would otherwise bar false claims and outrageous promises. You can’t claim that a herbal diet drink will make customers thinner, but you can claim that £350m a week will go to the NHS instead of the European Union.

The brains behind the Leave victory discovered this loophole in their earlier incarnation as the NoToAV campaign, promising that the cost of a new voting system would deprive babies in incubators or squaddies in Afghanistan of a spurious figure plucked from the air. And they got away with it.

Will they pull off the same trick again? It was noticeable how quickly the twin planks of the Leave campaign – extra money for the health service, and the implicit promise to cut immigration by “taking back control” of our borders – fell apart. On Good Morning Britain just hours after the result was declared, Nigel Farage decried the NHS pledge as a “mistake” (he was not part of the official Leave campaign that made it).

That evening, the Tory MEP Daniel Hannan told Newsnight that “taking back control” of immigration didn’t necessarily mean cutting it. He advocated joining the single market: meaning that if Turkey does join the EU, Britain will be obliged to accept freedom of movement for its citizens. And we won’t have a veto on Turkish accession. (When we leave the EU, we will also lose automatic access to the scheme by which failed asylum-seekers are returned to the country in which they first claimed sanctuary.)

The first few days after the referendum felt like an extended period of gaslighting – being told that things you could distinctly remember happening had not, in fact, happened. How could anyone think that the Leave campaign had promised an extra £350m for the NHS? The money was “an extrapolation . . . never total”, said Iain Duncan Smith on the BBC. It was merely part of a “series of possibilities of what you could do”. My eyes flicked from his pious face to Twitter, where someone had posted a picture of him standing next to the campaign bus. Its slogan read: “We send the EU £350m a week. Let’s fund the NHS instead.” Then I looked at the pinned Tweet for the chief executive of Vote Leave, Matthew Elliott, which reads: “Let’s give our NHS the £350 million the EU takes every week.” These people promised us a unicorn and now claim they merely hinted at the possibility of a Shetland pony.

More gaslighting was to come in Boris Johnson’s announcement, made through the impeccably democratic, anti-elitist medium of his £250,000-a-year Telegraph column. Of course, we would retain access to the single market, said Johnson. Britons would be allowed to travel and live freely wherever they wanted in Europe, while we could also “take back democratic control of immigration policy, with a balanced and humane points-based system to suit the needs of business and industry”. Unfortunately, to use a phrase beloved by my dad, if Johnson thinks Angela Merkel will give the UK everything we want without giving anything back, he must be crackers.

The debate about free movement will dominate politics all summer, as the Tory leadership contest runs until 2 September. The future direction of the country will be seen through the prism of tactical advantage within the Conservatives. A split is already emerging on the right: Michael Gove, who promised withdrawal from the single market during the campaign, has aligned himself with Johnson. On 28 June, sources close to Johnson said he had been “tired” when he wrote the column, and it would be “vetted” to avoid mixed messages in future.

For the Tories, an unappealing choice lies ahead. It looks as though Britain’s economy is already contracting, thanks to the uncertainty brought on by Brexit. Their 2015 Tory election campaign, which asserted that Ed Miliband was a “threat” to our economic
security, feels blackly humorous.

Some of the pain could be mitigated if Britain accepted a deal close to what we have now. But is that what people voted for? The Leave campaign told voters over and over that mass immigration was frightening and it should be curtailed, and that public services were about to be pumped full of cash clawed back from Brussels. Right now, it’s the Remainers who are angry. But what happens when those who backed Brexit to get back at the political class discover that they have been taken for a ride?

The Leave campaign won by pretending there are simple answers to our problems. They spurned nuance, compromise and trade-offs. They won an astonishing and unexpected victory. But at what price? 

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 30 June 2016 issue of the New Statesman, The Brexit lies