Calls for the end of Greece’s membership of the euro — a so-called “velvet divorce” — and a new dawn for Europe are myopic and dangerously misguided.
The eurozone crisis has entered its end game and Greece’s forthcoming elections are regarded by many as nothing less than a referendum on the country remaining within the euro.
As the troika’s frustration with Greek malfeasance has grown, so, too, have calls for their exclusion from the euro. Some argue that only Greece’s departure will allow the eurozone to begin the process of healing and rebuilding, with the remaining partners coalescing around a hard core of like-minded, responsible states. Having learnt the lessons of admitting those not up to the task, the eurozone will rise again, renewed and refreshed to fulfil its long-delayed promise.
This view is dangerously rose-tinted and could precipitate the very disaster it seeks to avoid.
The contradiction at the heart of Greeks’ demands to repeal austerity is their concurrently held desire to remain in the euro. Polls suggest that 80 per cent of Greeks want to retain the common currency, a far greater number than plan to vote for the hard-left Syriza party, a frontrunner in the polls and the most vocal opponent of the present austerity programme. This limits the anti-austerity camp’s room to manoeuvre.
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Alexis Tsipras, the leader of Syriza, must realise that however much Europe would suffer on a Greek exit, his country would suffer more. International Monetary Fund estimates of a 10 per cent decline in gross domestic product may prove to be conservative. As one of the more astute and credible of his country’s politicians, Mr Tsipras must also recognise that politics is about the art of compromise and that he will have to meet Europe halfway with his demands.
Germany remains Europe’s austerity hard case. Importantly, Angela Merkel’s “austerity über alles” message also finds strong support from her constituents as the best policy to prevent recidivism and impose economic rigour on Greece and others in Southern Europe that they have so far shunned. But, like her colleagues in the other European capitals, she does not enjoy a pan-European mandate and any message that deviates from this core premise is unlikely to stand her in good stead ahead of national elections next year.
Furthermore, Germany has been the greatest beneficiary of a weak euro and may well have the most to lose from the turmoil sparked by a Greek departure.
So while Mrs Merkel’s insistence on austerity looks every bit as uncompromising as Mr Tsipras’s rejection of it, there may very well be a middle course between the Scylla of unremitting austerity and the Charybdis of a Greek default.
François Hollande’s election in France on the promise of growth over an exclusive emphasis on austerity may provide the timely political respite that all parties seek. If this were simply a bilateral standoff between the Greeks and the Germans, their differences might be insurmountable. However, Mr Hollande’s desire to insert growth into the European discussion has swung broad and credible continental support behind the idea, as Mario Monti, the Italian Prime Minister, and others endorse his views.
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Mr Hollande’s election not only moves the debate on from the “take it or leave it” choice of austerity but also allows Mrs Merkel and Mr Tsipras room to back away from what appear to be intractable positions. Mrs Merkel can claim to be acting in concert with her fellow eurozone leaders while Mr Tsipras can show the Greek electorate some return for his stand. A more hopeful way to look at this election, then, is as a bargaining position.
Austerity, though a necessary check on irresponsible and profligate governments, is unsustainable in its existing Teutonic guise. The Greeks are not the only country to recognise this, and this may provide the face-saving key to breaking the impasse.
In The Proud Tower, the historian Barbara Tuchman asked how something as malignant as the First World War could have arisen from the silver-lined period of technological, societal and economic progress that preceded it. If she were alive now, Professor Tuchman might ask a similar question about the fate of the euro today.
Conceived out of the rubble of war in circumstances of peace and prosperity with the aim of preventing another conflagration, the common currency now threatens self-immolation and the return to dangerous economic and political instability.
So while it may be true that there are no good options now, only less bad ones, of these choices a Greek exit is a potentially catastrophic step into the unknown. Despite their intransigence and frustrating unwillingness to honour their commitments, keeping the Greeks within the eurozone is infinitely preferable to engineering their departure.
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• William Stormont is the director of European equities at Henderson Global Investors