“NOW WE HAVE TO BAIL OUT THE EURO” screamed the front page of the Express last week, putting aside for once its obsession with the amount of money councils spend on translation services. Such mean-spiritedness is not just unattractive, it’s wrong-headed. We should show our struggling near-neighbours the same solidarity that we would hope to receive if similar difficulties were to befall us.
Gordon Brown has given the impression that the Greece crisis is a strictly eurozone affair. However, the consequences of a Greek default would reverberate well beyond. If Greece went under it would tear holes through the balance sheets of banks, including UK ones, holding Greek bonds, and these would only get bigger if the crisis spread across southern Europe – the predicted repercussion of failing to intervene decisively over Greece.
Contrary to the foam-flecked reveries of the euro’s critics, a sovereign debt crisis is unlikely to be the end of the eurozone, just the end of the strong euro. The sense of looming crisis has already sent the currency lower. British schadenfreude over this is short sighted, given that our recovery hopes are pinned on competitively devaluing sterling.
Once the markets have had their sport with Greece and the rest, they could, like a school of blood-crazed piranhas, come after us. We have a massive budget deficit and a ballooning debt. With elections on the way, we have a politically uncertain future, with the term ‘hung parliament’ being seen as synonymous with flinging open the gates of hell. As Michael Portillo – no europhile he – pointed out on This Week, if we get into trouble, we are going to need all the friends we can get.
The policies we have been pursuing, however, could mean bad karma. We wash our hands of the Greeks while City traders and Mayfair hedge funds have helped drive them to the brink by speculating on their default. We have pontificated about coordinated global action while the Bank of England has egged on a falling pound – the ultimate beggar-thy-neighbour manoeuvre. Although we boast of largesse to poor countries in debt write-offs and ring-fencing the aid budget, look at how we treated shell-shocked Iceland when its economy collapsed. No wristbands, no charity singles, but plenty of swaggering around like a loan shark, freezing assets and demanding full repayment within 15 years of the money lost through the Icesave failure. Let’s hope that what goes around doesn’t come around.
Although there is an argument that profligate Greeks have brought this on themselves by overspending and overborrowing, during the Make Poverty History campaign in the UK we generated popular and political momentum for aid and debt relief for countries far more misgoverned than Greece. There is also another issue at stake that right now eclipses the danger of moral hazard. While Greece is undeniably a mess, the panic has been stoked less by the underlying reality of its ability to repay its debts than by speculators betting on movements in the price of insuring against Greek default. True, it’s easy – and fun – to demonise speculators in a financial crisis, but at the same time, you can see how a market in insurance premiums where you don’t need to be an owner of the insurable asset could be open to abuse. It also raises an important question about sovereignty – should the financial markets be able to push sovereign states into ruination? Are countries and currency unions just gambling chips for the ‘Masters of the Universe’? I would suggest that the answer is no, and that European governments come together to face down this challenge.
If we are called upon to help struggling European economies, whether it’s via the IMF or EU, our interdependence with the continent makes it a false economy to refuse. We should do as we would be done by and show that our commitment to international cooperation and solidarity amounts to more than just token gestures and throw-away remarks.