Greek fiasco is Europe's fiasco too
The real issue about the new situation in Greece is that it is a microcosm of massive flaws in the way European political economy has moved in the last two decades at both the level of the European Union and the member states. Neither in Brussels nor in Athens does anyone yet seem to understand that
So, it happened. Greece's far-Left, anti-austerity Syriza party won the Greek elections. At least the European commentariat got that right. They're still in a state of denial and confusion over what it means, and so is Syriza itself.
The central reality is that Greece's problems -- the country has lost 25 percent of its overall economy since the crisis began in 2007/8 -- arose both because it pursued reckless tax, spend and borrow policies for years before the crisis erupted and because it adopted the euro which drastically exacerbated the situation.
Syriza, as an extreme populist Left party, is in favour of reckless fiscal policies and of retaining the euro. If they stick with this, don't expect their governance to yield good results.
One of the big mistakes being made in much of the commentary is that if Greece now reneges on commitments to slash debt and spending it "will have to leave the euro". This is misleading on two counts.
First, going bankrupt does not mean you have to change your currency. Why should it? The currency a country has is a political decision. It was a political decision to adopt the euro and it would be a political decision to drop it.
It has been clear for years that the euro is an economic disaster. But it isn't just a disaster for Greece. Which brings us to the second count on which the discussion about the euro is misleading.
The dominant assumption is that it would be a bad thing for Greece if it did leave the euro, an assumption shared by most Greeks and most European elites.
But dropping a currency that is vastly over-valued in relation to your economic fundamentals as well as an interest rate that can't be varied to take account of your economy's needs would be a good thing.
Greece would also need to do a lot of other things such as shrinking the size of the state and deregulating markets to restore its economy to health, but abandoning the ball and chain that is the euro would be a great first start.
To repeat, Syriza is in favour of neither dropping the euro, nor adopting sensible market reforms.
The real issue about the new situation in Greece is that it is a microcosm of massive flaws in the way European political economy has moved in the last two decades at both the level of the European Union and the member states. Neither in Brussels nor in Athens does anyone yet seem to understand that.
It is going to be interesting to see what happens when they do.
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