Brian Lucey: Athens asked to implement a plan doomed to failure

Greece is canary in the democratic coal mine

Pensioners struggle this week to enter a National Bank branch to receive part of their pension in Iraklio on the island of Crete .  Photograph:  Reuters/Stefanos Rapanis

Pensioners struggle this week to enter a National Bank branch to receive part of their pension in Iraklio on the island of Crete . Photograph: Reuters/Stefanos Rapanis

 

The Greek mess is one in which there is plenty of blame for all sides. Greece has been mismanaged, grievously, over the decades, with the result that is is a country in dire need of structural change.

The troika, on the other hand, has blundered and bumbled and blustered, hagridden by Dr Schaüble’s Hoover complex, and is now unable to countenance change.

Herbert Hoover, let us recall, was the US president who oversaw the descent into the Great Depression, a strict believer in budgetary rectitude regardless and who was at best insouciant about tight money policy.

Mind you, unlike Dr Schaüble, he was an early proponent of debt write-off, for German debt in the first World War.

Greece can neither move forward nor reverse course. It is now faced, partially by its own making and mostly by being goaded, with a procrustean choice: either abject surrender to a failed policy or a leap off a cliff into an unknown.

Lets start with the troika. We now have the situation where the IMF accepts that the plan which the troika wishes to impose on Greece will not work. And yet it continues to insist that the plan, self-admittedly unworkable and doomed to failure, must be adhered to. Its is The Plan. No Stalinist bureaucrat ever worshipped The Plan with as great a fervour, while knowing it to be bunkum.

The Greeks must implement a plan doomed to failure in order to succeed. This is the economic equivalent of the statement attributed to US army general Westmoreland that “in order to save the village it was necessary to destroy it”. The plan involves starving Greece to make it strong, a reverse Mr Creosote.

Mistake

Having made an enormous mistake in 2010 in bailing out private creditors on the back of the state (gee, where have we seen that before), the troika is now unwilling to take the obvious step and park that debt.

There are plenty of mechanisms for doing that but none that are acceptable to Dr Schaüble, who has emerged as a man willing to shove Greece under the train to fulfil his narrow political ambitions.

The consequence of such a demarche would be, ideally from the troika’s perspective, a government made up of Pasok/New Democracy. These protean populists drove the Greek economy like they stole it, and eventually drove it off the edge.

Naive and inexperienced Syriza may be, but it has been willing to confront many of the ills to which Greece is heir, in terms of modernising and confronting inefficiencies.

But it is clear that Schaüble and his followers, including Ireland, would rather see Greece go into the abyss, are actively seeking more regime change, and would in fact rather see democracy overtaken than see Syriza succeed.

A policy of transforming bailout money into investment in Greece – each investment being tied not to pension cuts or ideological privatisations, but instead to identifiable microeconomic governance and organisational change – that would be a sensible policy. But we won’t get that

It gets worse. We have an ECB that has run a tight money policy in a European recession now cutting off liquidity in a Greek depression.

This is exactly opposite to what a sane central bank should do. But the ECB has been politicised, but paradoxically not enough.

Noonan joined others in urging the ECB to adopt a particular monetary policy on emergency liquidity assistance (ELA). Schaüble has been vocal in so urging also.

The ECB, were it to be fully politicised, would have turned on the liquidity taps in 2009 to save political bacon.

Now it is neither one thing nor the other, neither independent nor subservient. The consequence is that it is not predictable, and we need central banks to be predictable in what they will do.

If Greece leaves the euro somehow, for nobody knows how that would be achieved, then we have no longer got a single currency. We will instead have a set of bilateral currency pegs. History is littered with the bones of such arrangements.

Some last longer than others – the euro is a youth compared to the 62 years of the Latin Monetary Union or the 41 years of the Scandinavian Monetary Union. These failed. Indeed, one of the harbingers of the failure of the Latin Monetary Union was the expulsion of Greece in 1908.

Fantasy

Absent a properly working central bank, with power of lender of last resort and with a sense of the role of monetary policy that is not rooted in a Hooverian fantasy, and with a sense of irrevocability gone, the euro will be much weaker than it would have been had Greece been kept in at any cost.

Greece is a canary in the democratic coal mine. Ireland is full square behind the German view that regardless of what Syriza does it cannot be allowed to remain in power.

Rumour has it that the quid pro quo for corporation tax not coming back into discussion was that we, the anti-Greece, the poster boys for the troika, lined up to hold the coats of the big boys as they put the boot into Greece.

And we did.

But that is not democracy, it is naked power. A union of sovereign states must be constructed on the basis that each is as important as the other. This is clearly not the case here.

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