Greece and the euro: the crisis continues

Editorial guardian.co.uk, Friday 10 February 2012 20.04 GMT

The cuts strategy is not working in Greece: not economically, not socially and certainly not politically

What's Greek for constructive dismissal? Because that's an apt term to describe how Greece is being treated by the other members of the eurozone. Consider: party leaders in Athens have spent days agonising over how to make €3bn (£2.5bn) of extra spending cuts (or over 1% of Greek GDP), apparently essential to qualify for the next round of loans from the EU and the IMF (these are relatively high interest loans, not a free bailout). After drawing up a list of painful reductions, including a 20% cut to the minimum wage and public sector job losses, the Greeks were told this week to go away and find another €300m. Or consider the insistence by Luxembourg prime minister Jean-Claude Juncker that Greece's politicians must turn these cuts into law, without allowing the public a vote. This is reminiscent of the disclosure last month that Germany wanted to install a European commissar in Athens to oversee Greece's budget-setting process. And here's the clincher: consider the number of briefings in Berlin suggesting that were Greece to leave the euro it would not be such a calamity.

Official or unofficial, on the record or off, the message from all these communications is much the same: Greece does not deserve the full suite of democratic policymaking; nor does it merit the kind of consideration that would be given to any heavyweight economy. At one level, of course, this is simply what happens to bankrupt countries. Countless Asian and Latin American nations have undergone the same torture at the hands of the IMF. The big difference here is that this is happening in Europe, within a single-currency club that was meant to protect its members from such indignity. There are two main problems with this constructive dismissal strategy. First, it is indefensible to the Greeks – and indeed to anyone else who follows the economics. Second, if these tactics don't come off the very existence of the euro will be imperilled – all over again.

It must be obvious by now that the cuts strategy is not working in Greece: not economically, not socially and certainly not politically. To take three numbers from this week, industrial production in Greece dropped over 11% in December from a year ago, while 20.9% of all adults are now out of work – and just about half of all young Greeks are also on the dole. In a corner of the eurozone, one member is going through an under-reported depression – and it is one that has largely been imposed on it by its neighbours. The severe austerity ordered on Greece by the troika of IMF, the EU and the European Central Bank was never going to improve the country's growth prospects; it has also failed in its own terms of reducing the national debt pile. No wonder then that the country is racked by regular protests, or that ministers are quitting the coalition rather than get pushed out of power by their constituents. Four senior Greek MPs resigned from government yesterday and it is a fair bet that more will go before the end of next week. The northern-European strategy of forcing Greece's caretaker government to go faster and harder on spending cuts is meanwhile feeding support for extremist parties.

The gamble for the rest of Europe is this: what if Greece does go? The calculation between the constructive dismissal strategy is that the euro will get back to business as usual. There is every reason to believe it won't. If Greece goes, investors will speculate that Portugal will be next. There will be much testing of the eurozone's famous firewall that's meant to protect Italy and Spain from the contagion. And in any case, companies and banks have abandoned the idea that a euro is a euro, wherever it is kept in the eurozone. Vodafone reportedly takes all spare cash out of Greece every night; and other multinationals are meanwhile preparing contracts accounting for a break-up of the single currency. It would be a brave gambler who wagered that this crisis could be contained.

Greece and the euro: the crisis continues | Editorial | Comment is free | The Guardian