First published in the Telegraph on 11 February 2010
Pigs are dispensable; or, at least, so says the Ministry of Defence, which yesterday owned up to detonating more than 100 of the poor sow-and-sows in its bid to improve the lot of soldiers blasted by roadside bombs in Iraq and Afghanistan. It is an enlightened attitude that cannot be said to be shared by our European neighbours, who were last night on the brink of endorsing the biggest pig-rescue mission in history.
Of course, in this case, the PIGS in question are not animals but countries – or, to be more precise, Portugal, Italy, Greece and Spain. In crisis talks in Brussels today, European leaders will discuss how to prevent Greece from imploding, and tipping its Mediterranean neighbours over the financial precipice. To the great horror of their more sensible Teutonic counterparts, these countries surfed on the tide of cheap credit provided by euro membership and generated a debt bubble so enormous that it threatens to take down their economies.
Investors are terrified that those at the sharpest end – in particular, the Greeks – will fail to honour their debts, and are demanding an ever-higher interest rate from them. If such a rate is imposed, Greece could soon, like every debt recidivist, find itself so hopelessly mired in interest payments that it will no longer hope to escape from its debt. It may already be there.
So far, so familiar. Greece is not the first and will not be the last country to face fiscal oblivion during the crisis. But what sets Greece and its porcine neighbours apart from, for instance, this sceptred, indebted isle, is that they are part of the euro. Should one of them default, the very act could bring the entire currency down, plunging the world economy’s most important continent into financial and economic chaos.
Moreover, none of the usual escape hatches for such crises is available in this case. Usually, the options would be, in order of increasing desperation: first, promise to cut the deficit as soon as possible; second, allow your currency to depreciate as fast as possible; third, if all else fails, call in the International Monetary Fund for a bail-out.
Greece has already laid out an impeccable austerity budget to slash its deficit, but, for all its sincerity, investors are loath to take it seriously, given tax- avoidance has long been a Greek national sport. As if to confirm its worst fears, the country was more or less shut down yesterday by a public sector strike. A general strike is in the diary for the end of this month. And this before even the nastiest spending cuts have come into force.
So what about an IMF bail-out? This is the option that would make the most economic sense, and has been pushed hard by the UK, the US and the IMF itself. But here’s where we leave logical economics behind and embark on what this really is – a political story.
Sensible as it is, an IMF bail-out is being resisted tooth and nail by Brussels, which understandably fears what that would imply: a clear signal that the euro project has failed, not to mention an opportunity for Washington to stick its nose into European economic management.
Which is more or less where we were last night. The European Commission is edging closer to a “solution” to the crisis. It may be done through the EC or, in slightly more ham-fisted fashion, by effectively passing a begging bowl round Germany, France and others. In time-honoured fashion, the discussions, which concern the fate of hundreds of millions of Europeans, are all going on behind closed doors.
The upshot is that, one way or another, the euro’s richer members will finance Greece for at least a few months – on the strict proviso that it carries out the austerity measures it promises.
Sounds like a muddle? Correct, but for blame one must look to the euro’s original architects, who made a concerted decision when creating the currency not to allow for eventualities like this. After all, to do so would have been to suggest that the project might fail. Quelle horreur!
But their refusal to see the economic logic – that in the end a currency union will fail unless there is some form of central economic government with fiscal powers – has left the European project facing its greatest test yet.
It was possible to sweep this uncomfortable truth underneath the carpet for the single currency’s first decade, but now the full scale of the Greek crisis has brought it back on to the agenda. And appropriate as it is that Greece finds itself the Achilles’ heel of the euro, it could easily have been one of a number of countries.
Even after the current mess is cleared up, the eurozone will find itself faced with an awkward question: does it admit that currency union was a mistake and dismantle it, or does it press on and create an effective European economic government to fill in the missing gap? To do nothing seems untenable.
Brussels, which of course has no reverse gear, is pushing for the latter. A few years ago, one would probably have assumed it would succeed. Today, the consensus behind ever-closer integration is disintegrating. The European project was forged in the post-war years when the public was willing to do anything to prevent a repeat of those atrocities. But the majority of Europeans were born well after the war. If Brussels expects to be able to push through closer economic integration over their heads, it may be in for a rude awakening. Even in Brussels, pigs can’t fly.