And that is where we are now – with other European countries wondering how to throw Greece a lifeline without being pulled under
“It was late last night and I was rifling through the sock drawers for euros to fund the annual half-term skiing. There were all sorts of useless coins – Uzbek som, Iraqi dinars, 2d bits – and there it was, like a sudden Proustian blast from our childhood. It was a 50-drachma piece, with Homer on one side and a boat on the other. It was dull and scuffed and technically as worthless as all the other coins in my hoard. But as I turned it over in my hand it seemed to glow like a pirate’s doubloon, radioactive with political meaning. This coin was more than just a memento of beach holidays when 50 drachmas was five ice creams. This was the history of Greece in the palm of my hand. When Socrates asked Crito to buy a cock and kill it for Asclepius; when Sappho bought her Lesbian girlfriend a Lydian hat; when his listeners rewarded old, blind Homer for chanting by the fire – how did they all pay?
“They paid in drachmas, a currency that served the people of Greece for at least 3,100 years, until they junked it for the euro. And the object I had in my hand, therefore, was a symbol of the economic freedom the Greeks gave away for the sake of national prestige.
|“They thought they were showing a new economic maturity,” continues Boris Johnson. “They thought they were sitting down at the top table. They thought that by merely using the same currency as the Germans they would somehow imbibe Teutonic habits of thrift and fiscal rigour. Or at least that was what they pretended at the time. By fudging their debt figures and adding income from the black market and prostitution on to their GDP the Greeks brilliantly limbo-danced under the Maastricht criteria – and then got on with borrowing and spending in the time-honoured Greek fashion, blissfully protected by euro membership from the penalty of higher interest rates.
“By October last year the deficit had risen to 12.7 per cent of GDP, and the gig was up. The free-riding came to an end. It wasn’t enough to be a member of the eurozone. The markets stopped believing that the Greeks were good for their $419 billion debts, and they started charging them extra; and the higher the cost of borrowing, the more dreadful the Greek fiscal position became – until people started warning that the Greeks might actually default, and bilk their creditors. And that, more or less, is where we are now – with other European countries wondering how to throw Greece a lifeline without being pulled under.
“There are several possible endings, none of them good. The first is that Greece could simply go bust. Athens could come Acropolis, as they say, and the financial tsunami would move into its second phase. Having taken out the weakest of the banks, the short-sellers would take out the weakest of the states that bailed out the banks, with horrific consequences.
“Do not think Britain would escape. How could we, when British banks have such vast loans outstanding to Greece?
“Alternatively, the Greeks could take radical action, slashing spending and raising taxes in so fierce a way that the markets were convinced the budget was really being brought under control. Would that work, or would it send the Greek economy into a further tailspin? Look at the seething mob on the streets of Athens. Could the government of George Papandreou really make such savage cuts? Could any government?
“The final possibility – and the most likely – is that there will be some sort of effort to bail out the Greeks, either by the other EU countries or the IMF or a combination of both. Greece will become a kind of Northern Rock, rescued with vast subsidies from elsewhere in order to stop a general collapse of the system. If and when this rescue happens, we will be in new and extraordinary political territory. By scrapping the Maastricht rules against bail-outs, the EU will have set up a hideous moral hazard.
“Profligate countries will have an incentive to be profligate, in the knowledge that they stand to be supported by Uncle Sugar in Brussels. Those who have taken huge pain to cut their own deficits – such as the Irish – will wonder why they bothered. Above all, this bail-out will come at a serious political price. It is absurd to expect the Germans to write out a colossal cheque for Greece, without giving Berlin some say over how that money is spent. I am not saying we are going back to 1941, with German gauleiters in the Athenian finance ministry.
“I do not say that there will be some vast German towel all over the Greek beach. But already the EU commission is talking about an “economic government of Europe”, and be in no doubt what that means. It means diluting the ability of Greek politicians to set tax and spending priorities. It means the end of the myth that you can have monetary without political union; and at a time of growing electoral disillusion, it means a further erosion of democracy.
“There is, finally, one option that will not be pursued. Even though it would give them a vital chance to devalue, even though it is the obvious way to regain competitiveness, the Greeks will not leave the euro. For Athens it would be too big a blow to their pride; for the other euro countries, it would be too big a shock for the still-young single currency. My drachmas will remain in the sock drawer, an unused escape hatch and a reminder of the days when Greece was free. What do we feel in Britain, as we watch this Greek tragedy?
“We feel the correct Aristotelian emotions of pity and fear. There but for the grace of God goes Britain, which also has a 13 per cent deficit. Every day that this crisis endures we should give thanks that we avoided that awful Procrustean bed of pain. Thank heavens we stayed out of the euro.”
This column appears in the Daily Telegraph