Monday 13 July 2015

EU has made a deal with Greece - and presumably will achieve regime change

"There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." 
(John Adams, the second U.S. President.)

The EU has made a deal with Greece. 

I always thought a deal was more likely than not. I am disappointed that Greece is not leaving the euro, which would have been an earthquake for the EU. Now the Greek parliament must vote on a far tougher proposal than the one the Greek government almost made before the referendum and which the Greek people voted against.

Presumably the EU will hereby achieve regime change in Greece (I hope so).

The Greeks would probably be better off out of euro - the UK would then be able to restructure EU. I was cheering Herr Schauble when he suggested Greece leave the euro. Germany has probably made a mistake backing down. 

Just to remind ourselves, the Greeks are in this mess because of the money they spent bailing out the Greek banks. Had they let their banks go bust and had Sarkozy and Strauss-Kahn let the banks take the hit on their loans to Greece all would (probably) be well.
I note Boris Johnson agrees with me but dislikes Herr Schauble. If only Enoch Powell, the great classicist, were alive to explain what's going on with Greece and E.U.

On the other hand, I don’t feel so very sorry for Greeks who have much better living standards than Romanians. As a Romanian said to me yesterday, Greeks have pensions of EUR 2000 a month and Romanians have pensions of EUR 200 
and yet Greeks want us to pay their debts.  
I thought that the average salary here was not much more than that but find it has just reached EUR 400 net monthIy.

It was a damned close run thing, apparently. Matteo Renzi, the Italian prime minister, said this morning
A couple of times last night I would have laid bets on the agreement failing. But...we managed to stop just a few centimetres away from crashing.

Alex White,of the Economist Intelligence Unit, has said

We continue to believe that a Grexit is likelier to occur than not, although we are pushing back the time period in which we expect this to happen. We shift our call from Grexit within the next three months to Grexit before the end of our medium-term forecast period (2019). 

This call is based upon our view that the referendum, and subsequent events, have permanently changed the political dynamics in Greece and the wider region. If the Greek parliament does approve a deal, it will be implementing a package that 62% of the population explicitly rejected a week ago. The chances of successful implementation are low. There are particular questions around how Greece will find the required €50 billion in assets for transfer to the European trust.

Jonathan Loynes, the chief European economist at an outfit called Capital Economics has opined: 

Our first reaction is that this will merely delay the inevitable. With the crisis having done enormous damage to the Greek economy and financial system in recent months, it is impossible to imagine that conditions will now return to anything like normal. 
Capital controls are likely to have to remain in place and the additional austerity needed to build up the primary surpluses will weaken the economy further. In short, a Greek exit from the eurozone MIGHT just have been kicked down the road a bit. But unless the new deal includes a substantial restructuring of Greek debt – which is unlikely – Greece’s future inside the eurozone remains under huge doubt.

Robert Peston yesterday retweeted a tweet from Siegfried Muresan

But once principle of temporary exit is established, the euro becomes a glorified currency peg, and they never endure.
That's a very interesting point indeed. 


  1. No, the Greeks are not in this mess because they bailed out the banks - that was Ireland.

    The Greeks are in this mess (as Enoch Powell would have been the first to point out) because their government spends money on a drunken sailor - on benefits and "public services", and because of their labour market regulations (which make mess unemployment inevitable).

    John Enoch Powell detested the E.U. (as I do), but he was a man of justice and truth - and he would have been the first to point out that the mess that is Greece is NOT the fault of the E.U. (any more than it the fault of the "banksters" - the lie that Mr Putin's servants are spreading).

    1. I do not disagree with you at all. I agree that the Greeks have been spendthrift, improvident, corrupt - what else would you expect them to be? But I wish they had defaulted while the debt was owed to banks not taxpayers. And they would have defaulted had it not been for Sarkozy and the EU panjandrums - who were frightened of a second Lehman Brothers.