There is no shortage of media coverage on Greece’s current financial crisis. This piece, however, paints a different picture from most. It is written by Thanasis Laskaratos of EPAM, the Greek People’s movment. EPAM is a cross-party campaigning organisation, similar to CIB.
As Greece prepares for a referendum which could determine whether it leaves the single currency or not, Sir Richard Branson, well known for his enthusiastic support for our membership of the EU, said that he was “not particularly” happy that we were out of the single currency. “I think that if we were part of the euro right now our currency would be a lot cheaper,” he told the Andrew Marr show. “Great Britain would be doing that much better in trading in Europe because the pound is a lot stronger than the euro, it makes it more difficult for us.”
Here, Branson once again proved the point that for business, the only real issue as far as our EU membership is concerned is trade. He also revealed his ignorance of the flawed nature of the single currency project. Had we been part of the single currency, we could not have cut interest rates to rock bottom at the height of the Great Recession allowing our currency to depreciate in value in relation to those of other nations. That is how things work with a “fiat currency” – i.e., where there is no peg to an asset such as gold. Countries in financial difficulty are encouraged to rely on exports (which will become cheaper with a weaker currency) as a way of rebuilding their economy. It is the textbook approach of the International Monetary Fund. Unfortunately, it is not an option available to Greece at the present time because it does not have control of the interest rates set for its currency – the Euro. If we had been part of the single currency, we would not have had that option either during that critical period five years ago.
So while UK goods might indeed be a bit cheaper now if they were denominated in the euro, which has fallen in value against a number of other major currencies recently, they would have been too expensive during the critical period when the recession was at its worst and a boost to our exports was desperately needed. We would have been entirely at the mercy of the European Central Bank. In other words, the exchange rate for the currency we would have been using would have been ultimately determined by decisions made in a foreign country and not therefore seeking the optimal rate for UK business. Perhaps the pound may be overvalued at the present as far as Branson’s business empire is concerned, but this is a price worth paying to preserve the freedom to control interest rates and thus – to a degree, at least – exchange rates. The terrible recession in Greece is an object lesson to the tiny handful of influential people who bemoan our absence from the single currency. Branson, however, is not alone. Martin Sandbu, an economics writer for the Financial Times, maintained that Greece would not have suffered its current crisis had we joined the Eurozone, as we would have ensured that the financial discipline written into the Maastricht treaty and thus prevented earlier Greek governments from over-borrowing when money was cheap. A rebuttal to this rather fanciful idea was provided by Raoul Ruparel of Open Europe. Even this pro-EU think tank has sufficient wisdom to see the lack of substance to Sandbu’s argument. With the UK experiencing economic difficulties some time before the Eurozone, “the UK would have found itself in a similar position to Ireland, with the rest of the eurozone (which had yet to be hit by the sovereign crisis) lecturing it on economic and financial policy”, said Ruparel. “The fallout would probably have been the UK leaving the euro and possibly the EU, precipitating a potentially even deeper crisis for all involved. In the end the fundamental flaws in the Eurozone, clear for all now to see, would probably have been exacerbated by having another large country with different needs inside the single currency.”
Yes, the single currency is a flawed project. Professor Tim Congdon highlighted the vulnerability of European monetary union to depositor runs on the banking system (such as we have seen recently in Greece) over 25 years ago. “When I spoke to them at conferences, dinners and such like, the euro’s architects….. dismissed my concerns as of no importance”, he wrote recently. Branson and his ilk regrettably remain as blind to these flaws as ever. Indeed, his blindness to the nature of the whole European project is quite staggering. During the same interview with the Andrew Marr show, he also said, “If we go back to being Great Britain again we will have our hands tied behind our back and I think Europeans will rightly punish us and we’ll be back to where we were fifty years ago.” Branson clearly has no concept of the EEA/EFTA exit route – the so-called “Norway Option”, which, far from tying our hands behind our backs, would be a benefit to our trade in the longer term. He then repeated a really basic howler in claiming the EU had helped preserve relative peace in Europe. Oh really? What has it done to preserve peace in Ukraine? It has in many ways fermented the conflict. What about Serbia? What did it do to end the conflicts with ETA or the IRA? The credit for over seventy years of peace within Europe belongs to NATO, not the EU.
Branson then claimed it would be “catastrophic” if we left. Nonsense; it would be catastrophic if we didn’t leave. It would be the end of our great country. It would be the final nail in our Common Law legal system and the sovereignty of our Parliament. Deceived by our political leaders, we made a wrong turning over forty years ago and locked ourselves into a project which we have never really supported. The referendum offers us a chance to right a great wrong.
Branson is no politician and should keep his big mouth shut over issues about which he is plainly pig-ignorant. He should instead stick to being an entrepreneur, which he clearly does very well. After all, his Virgin empire even includes a commercial space travel programme, Virgin Galactic. While it appears on the surface to be a long way from offering space travel for tourists, judging by the silly words he spoke to Andrew Marr about the EU, which seem so far removed from reality, one is tempted to wonder whether Branson does already inhabit another planet, if not some parallel universe.
The Taxpayers’ Alliance, in conjunction with Conservative Home, Business for Britain and the Institute for Economic Affairs, held a post-election conference in London on 11th May. The four-hour event covered a number of topics, including Scotland, the election campaign itself and the prospects for change in the EU. Although three of the four organisations co-hosting the event would claim to be cross-party, the meeting had a very strongly Tory flavour to it, with most of the keynote speakers being Conservative Party members.
Dr. Liam Fox was one of those who addressed the conference and his speech sounded a distinctly EU-critical note. He was particularly concerned about further possible calamities within the Eurozone, calling the Single Currency “an economic pass-the-parcel; a time bomb which they all hope will go off when someone else is holding it.” He claimed that senior figures in Brussels live in a parallel universe, quoting Mario Monti, a former Commissioner and Prime Minister of Italy who said recently “We have done so well with the Euro”. Dr. Fox appeared somewhat sceptical about the prospects of any meaningful renegotiation, especially in the light of recent comments by José Manuel Barroso, a former President of the European Commission, who stated that he would support renegotiation “as long as it is compatible with the objectives of the European Union.” Given that the main objective of the EU is “ever-closer union” and the logical end-point of “ever-closer union” is “union”, this does not sound promising for Mr Cameron, said Dr. Fox.
The panel for the debate on reform in the EU consisted of Douglas Carswell, UKIP’s sole MP, Matthew Elliott of Business for Britain and Laura Sandys, the former MP for Thanet South and Chairperson of the European Movement. For someone such as myself who had attended CIB’s rally and the recent presentation on “Flexcit” by Dr Richard North, the level of debate appeared pretty puerile by comparison. Admittedly, with a time slot of only half an hour including questions from the floor, there was not going to be long enough to do this subject justice, but it was particularly frustrating that neither of the other panellists took Laura Sandys to task for repeating Cameron’s statement that we had to stay in the EU to be “at the top table”. This shows a sad ignorance of how the EU now works. So much regulation landed on us by the EU does not originate in Brussels at all. The EU merely acts as a conduit for various organisations such as the World Trade Organisation, UNECE (the United Nations Economic Commission for Europe) and other global bodies. These are the real “top tables” and we do not have our own seat here. The EU represents us, but not just us. It represents all 28 member states. We would have far more clout in influencing legislation as an independent country, especially given that these bodies are not so keen to see national vetoes surrendered as the EU. (Your scribe attempted to raise this subject when the debate was opened to questions from the floor, but there was insufficient time for all those who raised their hands to be given a chance to speak)
Douglas Carswell stated his belief that David Cameron would try and repeat Harold Wilson’s trick of 1975, trying to sell a piffling concession to the electorate as a major triumph of renegotiation. With that one would agree. His endorsement for Business for Britain and its importance in the forthcoming referendum is a different matter.
Matthew Elliott said that remaining in under renegotiated conditions was better than the status quo. However, his contribution was most disappointing. He clearly shows no understanding of the EEA/EFTA option which would satisfy the concerns of businesses he claims to speak for while opening the door to a much better future. It would be by far the best way of satisfying on the one hand, a desire for a looser trading relationship with the EU while on the other ensuring a seamless exit. One was left with grave doubts as to whether he really does want to see our country regain his liberty.
However, given Laura Sandys’ senior role within the European Movement, it is apparent that fear, uncertainly and doubt are the only real weapons available to those who support our membership. She said that the pro-EU movement had failed to make the case for the positive role played by the EU. To which one must reply that it is because it hasn’t actually played a positive role; it has done far more harm than good. Supporters of our EU membership really don’t have any convincing arguments. Their arguments are very weak and easily refuted, Unfortunately, although right is on our side, we have a long way to go to win the argument irrevocably. Withdrawalists are still not at all clear what to do with the aces in our hand which, if played correctly, should finally persuade the public how much better life will be on the outside. I therefore left the meeting with a mixture of hope and frustration.
The latest sparring match in the election campaign has centred on foreign policy. Ed Miliband accused David Cameron of adopting an “inward-looking approach” to foreign policy at a speech at Chatham House on Friday. According to the Labour Leader, the Prime Minister’s leadership has resulted in the “biggest loss of influence for our country in a generation”.
Like a worn-out gramophone record, Miliband will include a criticism of Cameron’s offer of an in/out referendum on our membership of the EU. Recognising the weakness of the economic arguments, he has had to turn to the alleged political arguments against withdrawal. “The Tory view threatens to weaken further our position abroad, a pessimistic isolationism,” claimed Miliband.
This organisation is no cheer leader for David Cameron. His offer of a referendum is better than nothing, but it is quite clear that a Cameron-led government will bend every sinew to obtain an “in” vote. However, Miliband is living in cloud-cuckoo land if he believes that staying in the EU will increase our clout on the world stage.
Several recent articles which have appeared on the internet bring home the hard truth – the EU revolves around Germany. It has the largest population and is by far the largest economy in the Eurozone. The crisis in Greece has underlined how much Germany calls the shots in the Eurozone. Once Chancellor Angela Merkel and her finance minister Wolfgang Schäuble made it clear that there can be no deviation from the policy of austerity agreed in 2011, the die was cast. The rest of the single currency bloc and Christine Lagarde of the IMF all fell into line:- Greece can expect no realistic easing of credit terms.
There are legitimate grounds for exasperation with Greece. Even the far less confrontational centre right government led by Antonis Samaras, which was ousted by Alexis Tsipras’ left-wing Syriza movement earlier this year, dragged its heels. Given Syriza came to power on an anti-austerity ticket, it was inevitable that Brussels and Frankfurt would quickly find themselves at loggerheads with the new régime in Athens. However, for all the criticisms which can legitimately be made of the immature behaviour of Syriza’s leaders and the party’s ill-judged economic policies, they had a mandate from the Greek electorate.
Is the EU about to undermine this and seek régime change? This is the verdict of at least one analyst who states that “The campaign to bring Greece into line is not just about economics. It is power politics designed to crush any democratic voices that challenge the EU’s reigning economic orthodoxy.” If it fails, Greece may leave the Euro and possibly the EU, which, while financially manageable, would raise all manner of political implications, especially given Athens’ warm relationship with Vladimir Putin in Moscow. However, what if it succeeds?
The writer goes on to say that “Brussels will have definitively exposed its profoundly anti-democratic nature” and that “this will have political repercussions, not only in much bigger peripheral countries like Italy and Spain, also suffering under austerity policies, but in countries like France and Britain that belong to the core of the EU. A German-led exercise of power to crush a democratically elected European government with an iron fist will provoke a strong reaction in France, which sees itself as a bastion of democratic ideals. An off-the-cuff remark by Schäuble at the IMF meeting to the effect that France, too, would probably be happy to have someone force their Parliament to take action provoked a storm of indignation in France cutting across party lines.”
Turning specifically to UK, the article goes on to claim that crushing Greece “could tip the scales in a British election next month deemed too close to call, fuelling eurosceptic opinion that could boost not only the anti-European U.K. Independence Party but the Conservative Party of Prime Minister David Cameron, who has pledged to hold a referendum on continued EU membership if re-elected.” Considering Cameron is every inch a Brussels stooge, it would be ironic if he were to benefit from an escalation in the Greek crisis, but at least it would show up Miliband’s claims for the hollow nonsense that they are. Germany rules the roost as far as the EU is concerned. FACT. If we want to have any real influence in the world, we therefore have to throw off its yoke and regain our independence.
The launch of a progamme of quantitative easing by the European Central Bank does seem to have revived business confidence across the Eurozone after a long period of stagnation which saw a sustained fall in bank lending to businesses. Consumers are also now becoming less reluctant to spend, with both retail sales and car registrations up. The weakening Euro is helping Eurozone exporters and with the overall Eurozone annual inflation rate still negative, the increase in the cost of imports (which is the other side of the coin to currency depreciation) does not seem to be causing too many problems. Of course, broad-brush macroeconomic data do not reflect conditions on the ground for some struggling individuals – or indeed, in the case of an 18-country bloc, for some struggling member states – but things are definitely looking up on the economic front after a damaging double-dip recession.
Politically, it is a different story. Greece remains a concern, with still no sign of an imminent agreement with its creditors. The country’s Deputy Prime Minister Yannis Dragasakis told one national Greek daily yesterday that the option of holding a referendum or snap elections exists “in the back of our minds…in the event of an impasse” in talks with creditors. “There’s no way we would cross the red lines that we have set,” he went on to say. EU politicians want to keep Greece in the Eurozone, but not at any cost. In Germany especially, the behaviour of the new Syriza-;led government, with its talk of claims for war reparations, had not gone down well. Since 2011, when “Grexit” last appeared to be a real possibility, banking reforms have been implemented which, so many across the Eurozone believe, would prevent contagion in the event of Greece going bust and its banks collapsing. It is a small player in the Eurozone. If it were to leave or be forced out, life would go on across the rest of the single currency bloc without anyone losing much sleep.
Fair enough, but an important principle will have been violated. Eurozone membership was meant to be irreversible. Suppose it isn’t. At the moment, no one is talking about any other countries reverting to their national currencies and the remaining PIIGS (Portugal, Italy, Ireland and Spain) are not in such dire financial straits as Greece, but what if another crisis flared up? In particular, what if Greece with a new drachma, thrived economically outside the single currency bloc and the weaker countries within struggled? This would make Pexit, Spexit or whatever a more attractive possibility, thus undermining the whole project.
That may be for the future. However, in the present, a General Election was held in Finland on Sunday 19th which saw the eurosceptic Finns (formerly True Finns) become the second largest group in the country’s parliament. It is possible that they may be invited into coalition with the winners, the Centre Party. The Finns oppose any further bailouts to Greece, which could make life interesting given the deteriorating economic situation in Athens. They are also not too keen on immigration, like the Sweden Democrats and the Danish People’s Party. Quite how much influence the party’s 38MPs will be able to influence remains to be seen, but the strong showing of a eurosceptic party, even in a country with serious economic issues, is a reminder that unease at the direction of the EU isn’t going to go away any time soon – in this country or elsewhere.
The EU, we are told, is a good thing because it has kept the peace in Europe over the past 70 years. It may be true that the nations of Western Europe have not been at war with one another since 1945 but, quite apart from the credit for peace truly belonging to NATO, the drive towards ever-closer union between the different member states has not by any means ended the tensions between them.
Two recent examples prove the point – one fairly trivial, the other far more serious. A minor tension recently erupted between France and Belgium over plans for a commemorative €2 coin marking the 200th anniversary of the Battle of Waterloo. The battlefield is a few miles from Brussels and the idea to mark this event originated with the Belgians. However, French sensitivities knocked the idea on the head on the grounds that glorifying a time of conflict ran counter to efforts to foster European unity. Ironically, last year France issued a €2 coin last year to mark the 70th anniversary of the Normandy landings. Maybe the real issue for the French is not so much European unity but the simple fact that at Waterloo, they lost!
Outside the Eurozone, the UK is not bound by the wishes of other countries and our £5 commemorative coin has already appeared. We actually had a choice of victories to commemorate, as this year also marks the 600th anniversary of the Battle of Agincourt. It also marks the 50th anniversary of the death of Winston Churchill. Anyone with a detailed knowledge of the UK rail network would know that Handborough, the nearest station to Bladon church, where Churchill wished to be buried, is easiest reached from London’s Paddington station, but Churchill insisted that his funeral train was to depart from Waterloo as the very name would irritate his long-time nemesis General de Gaulle.
On a more serious note, the war of words between Germany and Greece has intensified in the last few days. Firstly, the Greek finance Minister Yanis Varoufakis, accused his German counterpart, Wolfgang Schäuble, of calling him “naïve”, an accusation which Schäuble has emphatically denied. However, Greece’s Syriza-led government then poured fuel on the flames by raising the delicate matter of war reparations, seeking €341 billion from Germany to compensate for the behaviour of the Nazis during their occupation of Greece from 1941 to 1944. Germany has rejected these claims, saying the issue was dealt with in 1960, when a payment was made to the Greek government. Greece’s justice minister, Nikos Paraskevopoulos, then asserted that as Germany has refused to pay anything more, he is about to sign a court order allowing German property in Greece to be seized.
Where this is going to end up is anyone’s guess, but it looks like an amicable parting of the ways may be best for Greece and the Eurozone. Greece’s best chance of recovering from its financial woes is to follow Iceland’s example and default on its debts – a move which could only be accomplished outside the Eurozone. Greek public finances deteriorated during the four years the country was run by a government reasonably committed to the austerity programme demanded by its creditors. The country’s public debt to GDP ratio rose from 129.6% in 2010 to 174.9% between 2010 and 2014. Syriza wants to increase the tax-free allowance and spend more. The likelihood of any improvement in the public finances under the new government is therefore precisely zero. Indeed, Varoufakis has acknowledged the desperate plight his country faces. Greece is “the most bankrupt of any state,” he said, adding, “Clever people in Brussels, in Frankfurt and in Berlin knew back in May 2010 that Greece would never pay back its debts. But they acted as if Greece wasn’t bankrupt, as if it just didn’t have enough liquid funds.”
Statistics for January 2015 from the Greek finance ministry show that he is not exaggerating the plight his country faces. Income tax, which yielded €988 million in January 2014, brought in a paltry €519 million a year later, a drop of over 45% and barely half the €998 million target. VAT revenue also fell from €1,622 million to €1,329 million over the same period, whereas the target was an increase to €1,687 million. The fact that the Greek government managed to run a primary surplus for the month is an indication of the extent to which the austerity programme has forced it to scale back its public spending in order to satisfy its creditors. With public servants to pay and some substantial loan repayments due in a few months’ time, it is hard to see where the money is going to come from. In the past week a desperate search for cash has caused the Greek government to raid the bank deposits of pension funds while delaying payments to its creditors. It has even approached the Greek subsidiaries of multinational companies for short-term loans.
Things clearly are going to come to a head soon, especially as the Germans – both the government and the people at large – have no sympathy whatever for the problems of their fellow eurozone-member: “The Greek government is behaving as if everyone must dance to its tune. But there must be an end to this madness. Europe must not be made to look stupid,” said one German paper.
As a non-Eurozone member, we in the UK may feel that we are observing this tragedy as outsiders. However, Neil Woodford, the head of investment at Woodford Investment Management, a large firm in the City of London, believes that we cannot indefinitely continue to watch from the sidelines. “Ultimately, this country will have to make a choice about whether it is a fully signed-up member of a eurozone project or not,” he said. In other words, adopting the euro or withdrawal are the only long-term options. Whether we consider the curtailment of our freedoms to commemorate our victories over the French or our likely entanglement in the sport of spat going on between Greece and Germany at the moment, it’s pretty clear which would be the best alternative