Greece’s painful and irresponsible bail out
Greece has now got a worse deal than it originally opposed. Let's be clear. It's their fault for wanting to be in a failed single currency. But it's also Germany and Brussel's fault for living in fantasy land. It's all a very European mess, and it's not going away
Mr Tsipras, prime minister of Greece, has changed from firebrand advocate of change in the Euro and opponent of austerity into EU establishment poster boy, accepting every term of a bad deal.
His willingness to sign up for everything he once opposed is a far from reassuring sight. He says he is taking a painful but responsible approach. I see nothing responsible in what he is visiting on both Greece and the Eurozone.
Whilst Mr Tsipras and the zone have been at war over the deal, the Greek economy must have suffered further substantial damage from bank closures, loss of tourist revenue, and the inability of Greek companies to pay overseas suppliers.
The creditors will probably discover the Greek accounts are in worse shape today than they have forecast for the new loan.
Germany says the IMF must be part of the new deal, but the IMF says there has to be Greek debt retirement or easing of terms which Germany thinks undesirable and unnecessary. Let us assume this is another gulf which can be bridged by compromise and ambiguous words.
It still leaves Greece with more debt than it can repay anytime soon, and still leaves Greece struggling to get its fiscal deficit down. It will also leave a very unhappy German electorate blaming Mrs Merkel for giving ground.
The truth is that the responsible course would be for the zone to admit now that if Greece is to continue in the Euro Germany and the other richer parts of the zone have to send grants to Greece to assist it. If they do not wish to do that, it would be best for Greece to leave the zone in a planned and orderly way, creating her own currency again and writing off some of the debt she owes to the EU, Euro area and IMF.
For Germany an exit settlement might be cheaper now than at the end of another failed bail out plan.
The probability that Greece will hit the privatisation and deficit reduction targets, resume good growth and get back to her pre-crisis levels of income is very low. This Greek saga is unfortunately far from over.
This country is suffering from too little demand, too little money in circulation, badly damaged banks and a poorly managed and expensive public sector that has to make cuts. It now has the problem that the public voted for a different policy when they voted for Syriza, then voted again for it in the referendum, and have ended up with a worse version of what they opposed.
They are in part the architects of their own crisis, because they want to stay in the Euro but don’t accept its rules, disciplines and lack of transfers from the richer areas.
Mr. Redwood's writing is re-posted here by his kind permission. This and other articles are available at johnredwoodsdiary.com
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