By Jac Laubscher, 10 July 2015
All the parties involved stand to be accused of having contributed to the deepening of the crisis and to it dragging on for so long without coming to a point. European countries are understandably frustrated in having to deal with the current Greek government and its leader, Mr Alexis Tsipras, who apparently believes all European governments must bow to the will of the Greek electorate.
However, one could argue that Mr Tsipras and his leftist party, Syriza, would never have come to power if European leaders had not preferred to kick the can down the road time after time in avoiding difficult decisions, such a writing down a substantial part of Greece’s debt in recognition of the fact that it being paid back was just not viable. For their part the Greeks should have recognised that having to return to living within one’s means is not austerity but reality.
The starting point in assessing this drama is of course the recognition that the introduction of the euro was a political project from the start. Although the possibility of introducing a common European currency had been mooted in the early 1970s, it was the fall of the Berlin Wall in 1989 and the subsequent reunification of West and East Germany that triggered the decision to finally go ahead with the euro project.
The prospect of a powerful European hegemon emerging from an enlarged and strong Germany caused some anxiety among other European countries, notably France. As much as they wanted their fears allayed, Germany wanted to do just that. As a result was it was decided to tie European countries even more tightly together through a monetary union. The problem of course was that the economic logic (or rather the lack of it) of the euro project was given short shrift.
As a consequence the necessary economic institutions, in particular a fiscal union to support the monetary arrangement, were not put in place. The need to narrow the structural differences between European countries to bring them closer to a common competiveness standard was likewise ignored. Not even the political unification project was pushed with the necessary enthusiasm, with separate European countries being jealous of their national sovereignty.
The result was that Greece was allowed to join the euro zone for political reasons while a blind eye was turned to its economic shortcomings. It only succeeded in complying with the Maastricht criteria for euro membership by fudging the numbers with the assistance of Goldman Sachs. And the subsequent gift it received from financial markets in the form of German-style bond yields, failing to differentiate sufficiently between the credit worthiness of individual eurozone members, made sustaining a high level of government debt so much easier.
The Greek problem of today is therefore essentially a political one that requires a political solution, with the economics being subservient. And that solution may well be to ease Greece’s exit from the eurozone (but not the EU) in order to return to the situation that should have prevailed all along.
Greece’s travails are of course bringing the deficiencies in the euro arrangement starkly to the fore, forcing the member countries into a stark choice - either complete the European integration project or abondon it. The damage that has been done to trust among the eurozone members will make future muddling through increasingly unpalatable.
The Greek debt crisis has also once again brought the need for an orderly sovereign debt resolution mechanism to the fore, bearing in mind that sovereign debt crises will usually be political by nature. It should be recognised that although countries seldom go bankrupt in the sense of their national net worth moving into negative territory, they do stumble into being overtaken by unsustainable debt dynamics (with the active help of complacent lenders, one should add). The Argentine debt crisis, for example, could have been resolved much more orderly had such a mechanism been in place, and other countries will also need it in the future (Ukraine might be next in line). Perhaps the G20 could take the initiative in promoting this idea.
It seems to be fashionable to look for lessons for South Africa in the Greek dilemma (strange how commentators seldom seem to think that other countries can learn from South Africa!). Apart from the obvious lesson that a country should never allow itself, by living beyond its means, to get into the debt predicament in which Greece finds itself, there is perhaps an important political lesson to be learned from all of this, viz. never to embark on political projects without carefully scrutinising their economic feasibility.
South Africa should therefore be rather hard-nosed with regard to participating in African integration and cooperation projects ̶ it should make absolutely sure of the economic costs and benefits that would come its way. The lessons learned from the unbalanced SACU agreement should stand us in good stead.
This is also applicable to South Africa’s membership of the BRICS group of countries. The rationale for the BRICS configuration is essentially geopolitical, viz. cocking a snook at the West. Attempts to expand it into an economic union of some sort should be approached with circumspection. Fortunately the South African government seems to be aware of this even though, for understandable reasons, it is normally not trumpeted.