27 January, 2015


It seems one of my New Year's predictions has already come good: that Syriza would win the election in Greece but without a majority.

The question all over the papers is 'what happens now?'.

Greece should never have been let into Europe, and it appears that when it applied to join the euro, the European Commission was well aware that it had fiddled the figures. It happened because - and this will become increasingly important to bear in mind - Europe and the single currency are political, not economic, phenomena.

Greece did not have a set of responsible politicians. The same parties, indeed the same families, had run it since the era of the colonels, and they were corrupt and incompetent. They went on a spending spree. The standard of living of the average Greek increased by 36% between the start of the euro and the financial crisis.

The powers in Brussels, and indeed the Germans, knew this. But they said nothing.

Why? Because the spending spree had been financed by German banks, with help from the French (there was very little British lending to Greece). In one of the worst pieces of credit misjudgment in history they decided that all eurozone countries were an equal credit risk and since Greek debt paid more (why did it pay more? Aha!) they piled in.

Of course if you believe all eurozone risk is equal, you are assuming that countries in trouble will be bailed out. We shall have to give some thought to that in the coming weeks.

At the start of the crisis it was clear that Greece couldn't pay its debts and a chunk needed to be written off. But that would have exposed the incompetent German bankers so instead the Greeks were saddled with even more debt. Very little of this actually went into Greece - there was very little new money.

The Greeks had been shafted to save Germany.

So it isn't surprising that they voted for Mr Tsipras, who declares Greece should have the same kind of debt forgiveness Germany was given after the war.

But Europe can't do that because Italy and Spain would also want it.

What should happen is that Tsipras should take Greece out of the Euro and declare a full moratorium on its debt.

But it won't happen because the Greeks, poor ignorant souls, think the euro is a good thing: a badge of solvency.

There will be a fudge, and the Greeks will continue to suffer.

No comments: