The Greek Tragedy and the utter failure of
the single currency


Greece has run out of time. Its banks are shut. Its future in the single currency is uncertain. Rival protesters confront each other in the streets. Tomorrow, Greeks will vote on a bailout deal that – on paper at least – is no longer on the table.

Greek premier Alexis Tspiras stunned Eurozone leaders last week by calling a referendum on proposals made to Greece by the Troika on June 25,. The European Central Bank swiftly cut off emergency funds from Greece. Greek families woke up on Monday to find their banks shut and their accounts frozen. Cash withdrawals are limited to €60 a day. On Tuesday, Greece became the first developed nation in history to default on the International Monetary Fund. The twists and turns keep coming at breakneck speed, and the stakes could not be higher.

I have always had a soft spot for the Greeks. True civilisation began in its ancient city states. Ancient Greece gave the world democracy, philosophy and some truly amazing architecture. Greek civilisation inspired the Romans, who spread its ideals throughout Europe. Greece was at the heart of the Eastern Roman (‘Byzantine’) Empire, which preserved Western civilisation through the Dark Ages to AD 1453. Greeks endured centuries of oppressive rule by the Ottoman Turks. They fought bravely beside the Allies in the First World War and endured a brutal occupation by the Axis powers during the Second World War. To see a proud nation like Greece reduced to beggary is nothing short of heartbreaking.

There are no good solutions for the predicament Greeks find themselves in. Like Atlas, Greece carries the crushing burden of its own accumulated debt alongside the additional burdens imposed by its creditors. Something has got to give.

I am certainly not arguing that Greece is the blameless victim here. The Greek people must accept that they are largely responsible for the mess they are in. Time and time again they have elected governments which promised them more state handouts, early retirement and over-generous labour laws. At no point did those governments worry about how they were going to pay for all their ridiculous promises. No nation can live outside its means. Greece is no exception.

Yet the Greeks are not entirely to blame. Greece should never have been allowed into the single currency to begin with. With made up accounts concealing a massive debt crisis, its entry proved that the stringent Maastricht entry conditions – forbidding member states from running deficits over three per cent of GDP – were not worth the paper they were printed on.

The single currency was a flawed project from the beginning. Without fiscal union – which in turn requires political union – there can be no currency union. Without a mechanism to smooth over imbalances between richer and poorer regions, any common currency area is doomed to fall apart.

But full fiscal and political union would be hugely unpopular. So as a stopgap measure the Eurozone got a currency that was surely designed to fall apart from the outset. I cannot help but think that this was deliberate. At some point a crisis would ‘force’ European leaders to adopt fiscal union against the wishes of their people.

Nothing is more important to europhile true believers than the survival of the project. The IMF and the Troika have repeatedly pushed Greece under a bus to save the euro. The bailouts so far have been designed almost solely to prop up the single currency.

Greek democracy has been repeatedly ignored. When the elected government of George Papandreou mooted a referendum on bailout terms in 2011, EU leaders simply replaced them with a government more to their liking.

As a result the Greeks have been driven into the arms of the radical left and their siren song promises of unlimited state largesse. Syriza’s doctrinaire Marxism is both wrongheaded and unsustainable. Their lefty hipster cheerleaders in Britain would do well to remember the fate of that other country whose leftist rulers they applauded, Venezuela, where even toilet roll is scarce and dissent is brutally crushed.

The least worst solution for Greece now is a ‘Grexit’. Decoupling from the disastrous euro project and returning to the drachma would allow the Greek government to write off a portion of their unmanageable debt through devaluation. It would also allow prices to fall, making Greek holidays, goods and services attractive again.

You don’t have to look very far to see a successful example of this. Britain only started to recover from recession in 1992 after it untangled itself from the Exchange Rate Mechanism (ERM), the precursor of the single currency. As a result British public opinion was permanently set against shackling ourselves to the euro.

But devaluation can only be a sticking plaster on its own. It is an option of last resort. It is no substitute for real reform. Constant Greek devaluation would risk hyperinflation and turning Greece into the Zimbabwe of the Mediterranean.

In the longer term, Greece needs to make itself attractive for business and investors. It needs to radically reform its labour laws and entitlement provisions. It needs to overhaul its tax system so that people actually pay tax. It needs to keep cutting spending and live within its means. What Greece needs is a free market revolution. It is unlikely to get one with Syriza in charge.

Euro-leaders are adamant that there can be no going back once an EU member state has taken the single currency. But it is hard to see how Greece can stay in the Eurozone if its people vote “No” tomorrow. If they do, then we may well see the single currency begin to fall apart. Few will mourn its passing, especially in Greece.