Finally, the endgame. After weeks of posturing, Greece is running out of time to escape bankruptcy and a forced exit from the European single currency. By Friday, as both sides scrambled to fix up a fresh round of talks for this weekend after the International Monetary Fund’s negotiators flew home in frustration, it appeared that European officials had been discussing how they might manage a Greek default.
It’s hard not to be mesmerised by the day-to-day drama of walkouts, public posturing and political intrigue, which may finally reach its conclusion in the coming days.
But as Greece hurtles towards the brink, it’s worth asking how we got here. The euro was always meant to be a political project above all – lifting Europe’s stragglers up to the living standards of the rest and, in doing so,k cementing the political ties between Athens and Antwerp, Madrid and Munich. Joining the club was a badge of political sophistication, as well as economic advancement; and clubbing together, it was thought, would help the European economy to act as a counterweight to the might of the dollar and the hegemony of US-style market capitalism.
It’s a measure of how far the eurozone has departed from that founding mythology that the IMF, the fountainhead of economic neoliberalism, has sometimes found itself having to act as a moderating force as the bailout talks have dragged on in recent weeks.
Greece has contracted by an extraordinary 20% at the behest, and under the supervision, of its eurozone partners
It appears to have been the IMF that has insisted on putting the possibility of debt write-offs on the table, for example, when European negotiators were unwilling to countenance it.
Since 2010, Europe’s powerful “core” countries – led by Germany – have forced Greece and the other bailed-out countries to swallow a hefty dose of neoliberal orthodoxy: deep spending cuts, deregulation of a string of markets, pension reforms, the dismantling of collective bargaining. Private sector bondholders, many of them German banks who lent hand over fist to Greece in the runup to the crisis, were largely made good; workers have suffered wage cuts as the government struggles to make repayments to its bailout creditors.
And all the while, Greece’s plight has continued to worsen. Since the first “rescue” was agreed in May 2010, the Greek economy has contracted by an extraordinary 20% – an economic collapse on a scale unthinkable in an advanced economy since the days of the Great Depression – at the behest, and under the supervision, of its eurozone partners. Meanwhile, unemployment has more than doubled, rising from 12% to 26%.
As default looms, a fair observer must admit that neither side in the slow-motion car crash has acquitted itself well. Alexis Tsipras and his finance minister, Yanis Varoufakis, have spent too much time grandstanding and writing spiky op-eds in the international press (or chatting to Vladimir Putin) when they should have been engaged in the hard graft of technical negotiations.
Germany’s finance minister, Wolfgang Schäuble, has sometimes seemed more interested in impugning the trustworthiness of his Greek interlocutors than trying to find common ground and cement a deal.
It would be quite understandable – though deeply risky – if Athens decides that enough is enough: without some element of debt forgiveness it will be hard to see any deal as financially sustainable, and its “red lines” on politically toxic pension reform appear to be under threat.
The sharp devaluation that would follow if the country readopted the drachma would at least give trade and tourism a boost.
But even if Greece is snatched from the brink of bankruptcy and kept in the euro in the coming days, the cause of promoting solidarity between eurozone nations has been long forgotten. It would hardly be surprising if the citizens of Greece – and, over time, perhaps those of other hard-pressed eurozone economies – decided they’d rather take their chances in the tough world of global markets alone.
‘Irresponsibility’ is too mild a term: traders did $3tn of damage
The rigging of Libor, we now know, took place with alacrity across the City. “I’m like a whore’s drawers,” one trader quipped as he moved interest rates up and down as favours for friends. There were offers of lunch, curries and bottles of champagne for playing along. The same goes for foreign exchange. Traders at various banks discuss trading patterns in chatrooms, calling themselves “the players”, “the 3 musketeers”, “1 team, 1 dream”, and “the A-team”.
As Bank of England governor Mark Carney put it last week: “Unethical behaviour went unchecked, proliferated and eventually became the norm. Too many participants neither felt responsible for the system nor recognised the full impact of their actions.”
His answer is to put these fixed income, currency and commodities markets – Ficc, as they are known in the Square Mile – under much closer scrutiny. Informal codes of practice that were ignored are to be replaced with far tougher procedures. Tens of thousands of fund managers, traders and interdealer brokers will be brought within the ambit of a new Senior Managers’ Regime, which comes into force next March and make individuals responsible for their actions.
A new market standards board will be created to police new, tougher codes of conduct. Criminal offences should be extended to rigging and abusing these Ficc markets (not just stock markets) and jail terms extended from seven to 10 years. But will the prospect of more time behind bars act as a deterrent? Not if convictions remain as rare as they are currently.
But Carney spelled out succinctly why the “age of irresponsibility” has to end. He rattled off statistics showing that fines of around $150bn have been imposed on major banks in the seven years since the banking crisis. These fines had resulted in the global economy being deprived of $3tn of potential growth-boosting credit. That is something that the Libor riggers and forex manipulators cannot joke about.
Scots are right to wonder where the oil money went
The Office for Budget Responsibility dealt a blow to the Scottish National party’s desire for full fiscal autonomy last week. By warning that North Sea oil and gas fields could generate total tax revenues of just £2bn between 2020 and 2041, it sent a signal that Scotland would struggle to go it alone as an independent nation. The economic consequences of these estimates are clear, but observers should beware of making assumptions about the political ones.
Voters in Scotland, and the rest of the UK, have every right to ask what has happened to all the money made from the North Sea. Unlike in Norway, there is no oil-backed sovereign wealth fund to pay for infrastructure and rainy days. It has all gone. Supporters of independence might see this mismanagement of a national resource as further evidence for giving Scotland control of its own economic affairs.