For a host of reasons, it is time for Greece to leave the Eurozone. Indeed, it should never have been a member in the first place. Controversy has swirled around Greece’s membership from the outset — it’s been accused of manipulating budget numbers, conducting large financial swaps with Goldman Sachs and others to alter deficits and generally being a chronic mendicant in the Eurozone. Even Sarkozy recently remarked that Greece should never have gained entry.
The cycle of bailouts for Greece has caused unnecessary volatility in world markets at a time when order and normalcy are desperately needed. Greece’s constant need for cash and its inability and unwillingness to get its house in order has been a headache and significant distraction from the real issue in the Eurozone: the creation of a central fiscal authority.
As a sidebar, the Eurozone is no different than pre-confederation Canada. A strong central government with taxation and spending power as well as a central monetary authority are all necessary for a federation of states (provinces) to work. Since Canada began this way with no embedded cultural and political differences (save for Quebec), it was a relatively painless exercise. The Eurozone conversely has centuries old cultural, political and economic differences to sort through. Clearly it is painful.
I believe that without the distraction of the Mediterranean countries and a couple of others, the strong northern European members would be well on their way to forging the final step to creating a viable, lasting economic union. Is it necessary to include all the countries which fall within the continent’s borders? Absolutely not, but this quaint notion has prevailed.
One of the many problems with the Euro as a currency is that its value is the weighted average of the countries’ economies embedded in it. If Greece were on its own with the Drachma, it would be a worth much less than the Euro which it must use as its currency. However if the German Deutschemark still existed, Germany would have a currency that would be trading for a lot more than the Euro.
And herein lies the rub.
Germany has benefitted hugely from a cheap currency which promotes its exports and weakens imports, while Greece has had to labour under the opposite effect of weak exports and strong imports. Thus under the Euro, Germany grows stronger and Greece grows weaker.
Thus Germany’s insistence that Greece get its economic house in order is disingenuous. Sure Greece has its issues, but a substantial part of them stem directly from its membership in the Euro.
So what would occur if Greece were to abandon the Eurozone? Many positive things in my opinion. First, the Euro would experience a modest upward valuation from shedding a weak member. That would temper Germany’s economy somewhat. Secondly, Greece then would have a much weaker currency which would promote its balance of trade.
However, more importantly, the adjustments it must make would be forced upon it by the global economy, not Germany.
Germany is now widely regarded as the bad boy of the Eurozone, conjuring up very disturbing images of Nazism from the 1930s and 40s. Similar sentiments are taking root in Portugal and Spain. The eminence grise of German politics, former Chancellor Helmut Schmidt, has been wisely warning about this for some time. Germany seems to have forgotten that the reparations forced upon it by France after the first world war are very similar to what it is forcing upon Greece. A century ago, saner voices such as Lord Keynes said they would not work and he was right. Those lessons should be heeded today.
Germany in its insistence of its notions of financial rectitude is endangering the continuation of the Euro and the Eurozone from a very unexpected and unhealthy quarter.
Greece’s departure from the Eurozone would solve all of this.