Thursday, 31 May 2012

Greece: The True cost of doing nothing

As I was watching a discussion on economics last night on BBC2 Newsnight between leading US Nobel Prize winning Economist and two British Right wing advocates of Conservative George Osborne's Austerity Plan it became apparent that the Conservative Chancellor is using the Deficit as a smoke screen for an agenda which is determined at home to use Austerity to justify a reduction of state spending to 30% of GDP and internationally delights in the exit of Greece from the Euro as a smashing of the federalist dream of a European Super State.

Whilst the US Nobel Prize winning economist Paul Krugman was fixed on ideas which might achieve a lowering of debt through economics, the British speakers Paul Mason and Alexandra Stratton repeated a classical economics mantra of Austerity leading to debt reduction as it John Maynard Keynes had never lived. I was also struck by the fact that the key determinant driving events was dithering by policy makers and fear spooking investors, markets and business.
Germany took a central role since it's determination never to repeat the hyperinflation of the 1920's gives it the determination to hold the line against those advocating a more flexible growth orientated approach. Yet what policy makers in Germany need to remember is that while policymakers in Britain and France in the 1920's stood by while their neighbours in Germany suffered in the 1923 Hyperinflation, there is a direct link between those socio-economic events then and the fear in German middle classes and industrialists that led to the rise of the Nazis and underpinned their crimes in the 1930's and 1940's. If we in Britain, Germany and France stand idly by now while Greece goes up in flames, we will see a 5-10% drop now  in our own GDP say the doomsayers  and a the rise of political extremism and instability in the Balkans dragged down by a Far Right or Far Left Greece. Old evils are rising, relations with Turkey are always difficult - how could Turkey enter Europe when Greece was so badly treated?. Surely a Far Right or Far Left Greek government would play the old card of hostility/fear of Turkey as a electoral card?
When the roof of a temple is about to cave in, then you quickly shore up the roof and protect those standing underneath from harm, not like Samson in the temple try and pull the whole edifice down around you. George Osborne is like Samson in the temple.
What would Conservative Prime Minister and once great Liberal Statesman Winston Churchill do?
He once said "When you your'e going through hell keep going". We on the other hand have stopped and are tearing out hair and beating our breasts. Churchill also said "A fanatic is one who can't change his mind and won't change the subject."
Churchill said in 1941 : "Until now we used to say that Greeks fight like heroes. Now we shall say heroes fight like Greeks.”

I believe that if Winston Churchill had been on the backbenches now he would have been advocating collective intervention of the great powers to help Greece to stabilise it's economy so it could stay in the euro and achieve a long term plan of reconstruction and deficit stabilisation matched with economic growth. If he had been in No.11 Downing Street he would have put together a plan for support and if in No.10 Downing Streeet he would have got on a plane and flown to Athens to pledge Britain's unilateral support for Greece while Europe struggled to find a solution. Instead David Cameron sits on the side lines and counts himself lucky he is on the outside of this, yet as the forecasters show , we may be an island but the financial tsunami from a Greek exit will affect us greatly.
An alternative plan - the Greek crisis has been rumbling on since 2010, and it has led to contagion in Portugal, Spain, and Italy. Yet the initial size of Greek debt £447 billion is miniscule compared to the financial resources of the Euro Area, yet failure to stabilise Greece has led to a wider bill of Spanish, Italian and other Euro country bailouts and of the wider European and Global recession costs of doing nothing.
It is easy to carp about European failure to solve the Greek Crisis and to even blame the Greeks themselves, yet Britain has stood on the sidelines and done what exactly to help? - Britain gave just £1bn to the last bailout, yet British exposure to Greek sovereign debt might be as high as £12bn 

The Lesson of all of this is the economic mismanagement of the 1920's leading the economic crises of the 1930's which led to the victory of Keynes over the classical do nothing austerity voodoo economists of the 1930's.

1 comment:

  1. It looks as though Europe will be the final rock which smashes the coalition, for Anti-European Conservatives events in Europe validate their 20 plus year fight against all things european whilst for Liberal Democrats events in Europe pose a challenge which needs to be answered since a European quagmire will result in Britain being dragged into the European maelstrom down the line (1914 and 1939 again)or a the solutions to the problems might create a European Superstate (not to democratic) which might either be envied or feared. Either way for Lib Dems turning our back on Europe is not an option, whilst for anti-european tories just as in 1923 the temptation of looking away from Europe is irresistable.