A Welcome Grexit

by DANIEL HANNAN July 19, 2015

For months, I've been meaning to write about Greece, but chickening out each week at the last minute. Events are so fast-moving that they risk making a columnist look an idiot by the time his article appears.

But then it hit me: No one writing about Greece is much bothered about what is actually taking place there. Rather, Greece has become a totem, a parable, an excuse for everyone to ride their favorite hobby-horses. Whatever happens, pundits seize on it as further proof of whatever they happened to believe anyway.

For Keynesians, led by Paul Krugman, Greece is an argument against austerity. Excessive fiscal tightening, they tell anyone who will listen, has sent that country into a downward spiral: higher unemployment, lower tax revenue, deeper cuts.

For those who believe in smaller government, Greece represents pretty much the opposite: a warning against too much debt. For years, they say, Greece engorged its state sector, hiring more bureaucrats, allowing people to retire younger, making few attempts to collect tax, and funding all this through credit. The reason Greeks are bleating and blaming everyone for their predicament, they say, is that excessive government has destroyed their sense of responsibility.

Both explanations contain elements of truth. It's possible to see Greece's public sector as bloated while still believing, with Paul Krugman, that you don't help a country in recession by forcing it to raise taxes. It's possible, too, to argue that Greek voters have been infantilized, encouraged to think of their economy as, in effect, the EU's business.

But one explanation towers over all the rest, an explanation so massively obvious that its bulk blocks out the sunlight: Greece should never have joined the euro.

As all sides now accept, Greece met none of the debt and deficit criteria laid down in the treaties. It was allowed in because, in Brussels, politics always trumps economics. The single currency was not meant to make people better off; it was designed as a symbol of European unity. Its architects were therefore reluctant to exclude the country where democracy had had its infant nurture.

Had Greece not been in the euro, the current crisis would not have been anything like so severe. The markets would have imposed their own discipline eight or nine years ago, before borrowing could reach calamitous levels. It was only the idea that Greek and German bonds were interchangeable that allowed such eye-watering debts to be racked up in the first place.

When the crash came, Greece was unable to do what every other stricken country does, namely to devalue. Britain, at the time, had had years of Gordon Brown's wastrel incontinence, and was running a deficit comparable to Greece's. But, being outside the euro, it was able to absorb some of the shock in its exchange rate, whereas Greece had to suffer the full force of the devaluation in output and jobs. The UK has since bounced back, its currency recovering as it has created more than two million new jobs. Greece, by contrast, has had six years of joblessness and emigration.

Yet the EU has done everything in its power to keep Greece in the single currency - in other words, to prolong its agonies. Why? Because, to repeat, politics always trumps economics. Without Greece, the project of European integration no longer seems (to use one of the Eurocrats' favorite words) "irreversible". And so the country has been ground into the dirt, its economy shrinking by an almost unbelievable 26 per cent.

When Greece leaves the euro - and that happy event may already have occurred by the time you read these words - it will have been battered almost past the point of recovery. Imagine a torture victim escaping into open country. He is perilously weak as he begins his journey; but he is still better off than he was in the dungeon.

All Greece's options are now bad. But minting new drachmas will at least allow the prospect of eventual recovery. The two largest sectors of the Greek economy, shipping and tourism, stand to gain from a competitive devaluation. That devaluation will allow Greece to price its way into the market, buying it precious time to make further reforms.

Eurocrats fret a Greek exit will inspire Spain and others to follow. Many of them therefore urge that life should be made as tough as possible for Greece, so as to deter others. Otherwise, they fear, the entire project might unravel.

You know what? I hope they're right. The EU has inflicted preventable poverty on millions through its doctrinaire insistence on ever-closer union. It's time for something better.

Daniel Hannan is a British writer and journalist, and has been Conservative MEP for South East England since 1999. He speaks French and Spanish and loves Europe, but believes that the EU is making its constituent nations poorer, less democratic and less free. He is the winner of the Bastiat Award for online journalism.


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