I have an image in
my mind. Its a bus running downhill, and its brakes have failed.
There are four men in the front cab. The two men in the middle are
both trying to control the steering wheel to keep the bus on the
road. The man to their right has control of the accelerator, and is
pushing on the gas hoping this will crash the bus to the right. The
fourth man to their left controls nothing, but as his pleas to stop
pressing the accelerator fall on deaf ears, he begins to wonder
whether it would be better for the passengers to grab the wheel and
crash the bus to the left. The three other drivers do not agree on
very much, except that it is all the fault of the guy on the left,
and now appear to be thinking about throwing him off. As the bus
hurtles downhill swerving from side to side, its passengers are
battered, some injured, and a few are jumping off.
I do not need to
explain the symbolism. I tried to change the image to explain why the
man on the right refuses to stop pressing on the accelerator of
growing primary surpluses, but gave up because the real reason is
that he wants to crash the bus anyway. (The argument that the
Eurozone’s rules do not allow debt write-offs is just nonsense.)
Otherwise I think the image works well. The two men in the centre
represent Tsipras and maybe Hollande. Hollande is saying that if only
you would let me have the wheel (‘structural reform’) all would
be well, but in truth the main reason the passengers are being
injured (unemployment and welfare cuts) or are jumping (migration) is
the speed of the bus.
The central question
is whether the men in the middle are delusional. By keeping the Greek
economy on the road that is the Eurozone are they only going to
prolong
the agony with the same inevitable crash which is Grexit?
There is only one
reason for optimism that I can see, although it assumes yet further
reductions in Greek living standards. The hill the bus is travelling
along will begin to flatten out and the road might even start to rise
as Greece becomes more competitive in terms of price. I outlined here
why that has not yet boosted the Greek economy to the extent it has
in Ireland, but if unemployment remains at or above 25% Greece should
get even more competitive. Instability and unwise Troika
interventions may delay the process, but eventually the tourists will
come. The Eurozone does contain a natural correction mechanism: it is
just slow and painful.
If this does
eventually lead to sustained growth in Greece, it does not excuse
what has gone before: recoveries do not justify recessions, and
government profligacy does not have to imply a 25% fall in GDP!
However this correction mechanism is not bound to succeed, if it is
countered by another dynamic, which is one that has been and
continues to be imposed by the Troika. That dynamic is austerity
chasing primary surpluses when that austerity makes the economy
shrink. Macromodels would probably tell us which dynamic will win
out, but they will not factor in a deterioration in the financial
position of banks (already not good as Frances Coppola points
out) as the economy stagnates, and the deteriorating
social and political situation that austerity brings.
So the eventual
outcome still depends on the decisions of the Troika. It always has
of course. The truth that their apologists find so uncomfortable is
that the Troika has been in charge of the economy since 2010, and
therefore is responsible for the mess we are now in. The idea that
all would be well if only Greece had undertaken every item of
structural reform they specified (and a lot was done) is just
silly. Now it appears as if it is all the fault of the
former Greek finance minister, because he dressed funny, or kept
wanting to talk about economics, or did
some contingency planning - it is so absurd
you couldn’t make it up.
One ray of hope
offered
by Anatole Kaletsky is that now “ritual humiliation” has been
achieved, the Troika will be more forgiving. I wish he was right, but
this argument fails to account for the German finance minister who
clearly believes that exit is the best option. He wants the bus to
crash for the sake of the other cars on the road. An optimistic view
would be that the shock [1] of what was done to Greece a few weeks ago
will bring others to their senses, and Schäuble’s influence on the
Eurogroup (and strangely the IMF) will decrease.
I fear the larger truth is that the non-German bloc in
the Eurozone does not have an alternative economic vision to offer
(although it clearly exists),
and will never face Germany down.
[1] Link added 31/07
