The economic crisis in Europe is falling most severely in Greece at the moment. The Greek government has a ruinously high deficit this year, at 12.7 per cent of GDP, and starts from a precariously high accumulated public debt, of more than 100 per cent of GDP. This blog has observed before that you can’t buck the market, as the government of Greece is learning the hard way.
Membership of the euro is an indispensable part of running a modern and successful economy in Europe, giving as it does the best access to export markets in other European countries, but it does not mean that all the other requirements of modernity and success can be forgotten. But that is in the past: what should Greece do next?
There has been a lot of talk and a number of proposals within the European Union about providing some kind of emergency assistance package to the Greek government. The Greek government’s debts are owed, substantially, to banks in other European countries, so a default by Greece could not be contained but would have serious consequences for the rest of Europe. However, the Maastricht treaty which introduced the euro was founded on the principle that member states would not be called upon to bail each other out. The ready availability of bailout funds would, it was feared, increase the likelihood of their being needed, and nobody, particularly not the taxpayers of Germany, wanted to pay for someone else’s mistakes.
So, there is a mismatch between the interdependence between the different countries in Europe and the institutions that are supposed to manage that interdependence. The institutions are lagging behind the facts, but for very understandable reasons.
It has been argued in some quarters that a European solution had to be found to the Greek problem, for reasons of the prestige of the eurozone. The EU would look less powerful and coherent in the world if an international solution were to be implemented instead. The Europeans should help their own.
It would be good if Europe were coordinated and effective enough to be able to assist the Greek government. That way, European citizens and taxpayers as a whole would be forced to confront the various policy mistakes and failings of the past few years (and there are German failings as well as Greek ones).
But Europe is not coordinated and effective enough at the moment, and should not pretend to be something it is not. Political opinion in the member states is not ready to face the reality of economic interdependence, and it is better that the policy steps which that interdependence makes necessary are taken with European eyes open rather than without understanding what is going on. If that means that, in the meantime, the Greek government should seek support from the world outside and not merely from the rest of Europe, then so be it.
If there is humiliation or embarrassment to be faced, it belongs to those heads of government and national financial ministers who allowed their rhetoric to race off ahead of their ability or willingness to act.