Anna Mallia | Wednesday, 17 February 2010 Issue. 151

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The eurozone’s first big test

Greece is a wake-up call that the euro has no mechanism for dealing with crises of this sort. It is monetary rather than fiscal union, and as Martin Felstein, a Harvard professor, puts it: “there’s too much incentive for countries to run up big deficits as there’s no feedback until a crisis.”

The problem is that it is not strictly speaking only the problem of Greece but it is the problem of all the members of the eurozone. This is why we must take the Greek issue very seriously and it is a double-edged sword: if we do not help Greece we will not save the euro and at the same time it is not fair to pay once again out of our taxes for the carelessness and negligence of Greece and Brussels.

Suffice it to say that within moments of the statement issued last Thursday, the euro dropped to a nine-month low against the dollar and share prices in the euro area stalled. The rot continued on Friday and according to economists, will persist unless finance ministers provide any detail on what a rescue package might involve. Although the political will is clearly still strong in Brussels to fight off any talk about a euro crisis, it is clear even to fans of the single currency that this is its single greatest test.

According to Albert Edwards of Societe Generale, “any help given to Greece merely delays the inevitable break-up of the eurozone.”
The problem, he adds, is a “lack of competitiveness within the eurozone – an inevitable consequence of the one-size-fits-all interest rate policy.”
Last Friday, Greek Prime Minister George Papandreous said that the Eurone’s first big test, Greece had become “a laboratory animal in the battle between Europe and the markets”, and he unleashed a fierce attack on its European Union partners accusing them of creating a “psychology of looming collapse” a day after they pledged support for the country’s crisis-hit government.

The Greek crisis is another case of incompetence by EU technocrats, who are paid heftily from our taxes in order to avoid what happened to Greece. Because had the Brussels people, the European Court of Auditors in Luxembourg and the EU Parliament done what they are paid to do, we would not be having this crisis – which is also our crisis because it affects the eurozone and the value of our euro. How shameful, that these auditors who get a financial package of €400,000 annually were not able to understand that they were being taken for a ride by the previous Greek government.

This is because what happened to Greece is the result of false accounts submitted to Brussels by the previous party in government. It was the Greek Prime Minister George Papandreou who uncovered the fact that their predecessors had hidden billions of euros worth of borrowing outside their official statistics. The combined effect was to cause a sudden sharp increase in the country’s borrowing rates and its default insurance spreads, as investors speculated that it was entering a fiscal debt trap from which it could no longer escape.

And lo and behold, none of the heftily paid people in Brussels and in Luxembourg (the seat of the European Court of Auditors) noticed that they were being taken that the accounts were false and nobody asked for their resignation. The problem is that in the eurozone no country can devalue its currency, as any country would do in such circumstances. So the solution is to either to step in and help or say bye to the eurozone.
But we are not talking about a state in Africa but a state in the EU with highly paid technocrats specifically paid not to let this happen because this is not a Greek problem it is our problem as well. Not only that but the problem is not merely that Greece, a relatively small economy was close to collapse, it was that, left unchecked, the panic could spread to Spain, Portugal, Italy or Ireland – all of whom suffer the same ballooning budget deficits and overburdened consumers.

By organizing a bailout, Brussels would be seen as providing unfair support for a country which had proven itself incapable of fiscal rectitude. Such a move would not only be hideously unpopular with the taxpayers, it would potentially encourage poorer countries to follow Greece’s lead.
But why should we be made to pay billions of euros in credit to Greece? No wonder that a poll published last Sunday showed that 67% of Germans did not want Germany and other EU states to give money to Greece and want debt-ridden Greece to be thrown out of the euro zone if necessary.
“If we start now, where do we stop?” Michael Fuchs, deputy head of Merkel’s conservatives in parliament told Welt am Sonntag newspaper. “I can’t explain to people on unemployment benefit they won’t get a cent more but Greeks can draw a pension at 63”. (In the first term, Merkel raised Germany’s retirement age to 67 from 65 in an effort to rein in the deficit to meet EU goals.).

Brussels is once again playing with words and taking us for a ride, for fear that it will be scrutinized for its incompetence. Van Rompuy’s excuse that ‘snow delayed the summit’ last Thursday was bought by the Maltese correspondents, who fear to investigate what goes one behind closed doors in Brussels – but not by those who know their job and who obtained information that the summit was delayed because the key players – Merkel, Sarkozy, Papandreous, Jean-Claude Juncker, head of the euro group of nations and Trichet – held a last-minute meeting and, according to insiders, voices were raised with Trichet and Merkel banging fists on the table as Sarkozy and Juncker tried to push for a bail-out plan.

The focus is on Germany because, under the eurozone rules, Germany is able to pursue an entirely divergent economic strategy to its Mediterranean counterparts and some even dare to suggest that the best course of action may be for Germany to pull out of the currency union because the imbalance makes it almost impossible for countries like Greece or Ireland to escape from this situation.

The Greek crisis serves as a reminder that no country is immune to a sudden investor exodus and it is about time that the accounts that are sent to Brussels by our government are put on the Table of the House for scrutiny. This would be the first step towards ensuring the people that we are on the right track except that we will have to dig into our pockets to save the euro because of Greece’s combination of rocketing budget deficits, high current account shortfalls and rising national debt. And believe me, at the rate that we are going, we are not far above Greece.

May I take this opportunity to congratulate and wish Commissioner John Dalli the best in his new job in Brussels and to remind all our readers that it is thanks to Ireland that he is in Brussels because were it for him and for all the Maltese Parliament, their vote was for a smaller number of commissioners on a rotation basis. It was Ireland, after the result of the first referendum, that on an Irish commissioner in every term, and not on rotation basis; and on this insistence the Lisbon treaty was amended so that each country has a commissioner in every term. But these are facts that our politicians and press tend to forget.

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