Tag Archives: Grexit

It’s the Stupidity, Stupid!

Last September I wrote about the recent General Election and the unlikely elevation of Jeremy Corbyn to lead the Labour Party; the lack of a post since then has been, I now realise, the result of deep-seated dismay.  In Britain, the first half of 2015 was dominated domestically by the backwash of the Scottish Independence referendum; internationally, by the circus of the Greek debt crisis, where Tsipras would agree one thing in Brussels and then go home and disown what he had agreed on TV, as if nobody outside Athens watched Greek TV.

Scottish independence vanished from the public agenda of the SNP just over a year after the referendum, with the collapse of the oil price.  Scotland’s prosperity now clearly lies with the current terms of the Union.  Although it should be noted that when in 2013 it looked as though the Grangemouth refinery was to be closed, the real problem was that this one closure would take 10% of the Scottish manufacturing base with it.  In January 2016 Scotland’s non-oil and gas exports to the rest of the United Kingdom were four times that to the rest of the EU and increasing – exports to the rest of the EU had fallen 8% in one year.  So the idea that the path to prosperity lay through an independent Scotland was always a rather flaky idea.  Besides which, actually establishing an independent Scotland could well turn out as costly as the Darien project.

Much the same is true of the idea that Britain could prosper through leaving the EU.  As Philip Stephens has pointed out in the FT recently, the idea that Britain could “reclaim sovereignty” by leaving the EU is self-refuting: the possibility of leaving is itself confirmation of sovereignty.  Quite apart from the very rudimentary idea of “sovereignty” that those who make such arguments display, detached from any serious consideration of the relationships now existing between European states, or any comprehension of the government of modern polities.  Best estimates of the economic gains from membership of the EU run at about 10%: that Britain is now 10% better off than it would have been had it never been a member of the EU.  Detaching Britain from the EU, and reorganising our political, economic and social relationships with the world’s third-most important political bloc, could well chew through that in short order.  What the dawning new era would be like is anyone’s guess, but there is no particular reason to suppose that it would be any improvement on the present.

Scottish independence could well follow on from Brexit.  The turbulence of Spanish politics could well lead into Catalan independence given the reduced legitimacy of established parties.  In France there is a related lack of support for the mainstream parties of right and left, which only together seem capable of stemming the electoral advance of the Front National.  Similar stories of disaffected voters placing their faith in the politics of anti-politics can be told about Italy, Germany, Greece, The Netherlands, Denmark.  And on the other side of the Atlantic those with any commitment to serious politics look on aghast as a huckster channelling the ghost of Huey Long steadily treads his path to nomination as the Republican Party presidential nominee.

As Max Weber noted, modern politics requires the firm, slow boring of hard boards, united with passion and a sense of proportion.  Today many seem to think that passion is enough.  “People” are said to be disaffected from politics and political leadership; a new antipolitics is said to be abroad.  True enough, today some of the leading British parliamentary figures plumb new depths of shallowness.  David Cameron presents himself as an honest broker, but he seeks to save us from a mess he created in the first place by his casual approach to party politics. George Osborne, set on spending ever less to “restore our finances”, seems baffled by the way that the less “he spends”, the poorer the nation becomes.  Tariq Ali tells us in the last London Review of Books that Jeremy Corbyn articulates a national mood – clearly he does not get out much, nor has he noticed that it is Corbyn’s advisers who seem to do all the articulating, the Labour Party leader being mostly mute.

The practice of politics in a representative democracy is an unedifying sight.  Representative democracy is however what we have, and the alternatives – plebiscitary democracy, authoritarian democracy, monarchy, dictatorship, oligarchic rule, theocracy – are all much worse.  We should be grateful for what we have, not be surprised by how imperfect it is.  Our efforts should be directed to improving ourselves and those around us, not blaming remote others for not giving us what we want.  All of the countries and regions mentioned above belong to the wealthiest part of the modern world.  Even being poor in a wealthy country is very rarely much like being even reasonably well-off in a poor country, a point that Adam Smith made long ago.  Articulating this principle in discussion of Europe’s immigration crisis would be helpful.  Simply being alive is a privilege; being alive in a wealthy country confers enormous benefits on those who live there, benefits to which they themselves have directly contributed little.

There is no economic case for Brexit, but that is more or less beside the point.  Extending the line of argument above, being a citizen of an EU member state brings with it social and cultural advantages that, being taken for granted, are usually ignored.  Britain is now more like eg. Holland than it is like any other non-EU country in the world – not the same, but in many significant ways similar.  Only for tourists and a wealthy elite does the USA look anything like Britain.  The truth of this is confirmed by the progress of Donald Trump through the Republican primaries.  But even here we can find confirmation of Adam Smith’s analysis of commercial society: that its motor is emulation and vanity; translated into the political process, those who already have much of what they need respond to politicians who promise them more of what they already have, which they no longer even notice they have.

The Political Economy of Debt

In 1706 and 1707 Acts of Union joined the Kingdom of Scotland to the Kingdom of England. The two countries had in fact shared the same person as monarch since 1603, and there had been previous attempts to fully unite the two kingdoms. It was indebtedness that provided the final impulse: Scotland was virtually bankrupt, and its economic salvation lay in the Union. Adam Smith was safely at Balliol in Oxford when in 1745 the final Jacobite rebellion flared, and was then crushed. But the emergent Scottish Enlightenment of which he became a member had been firmly anti-Jacobite, and the Scottish intelligentsia of the later eighteenth century was broadly united in recognising that the Union had enabled the Scotland in which they lived to flourish.

German Unification has been rather similar; with the difference that the current German President and Chancellor were both born and grew up in the former GDR, a state eventually more bankrupt than Scotland had ever been. For most of the eighteenth century Britain’s monarchs were Hanoverian; its Prime Ministers were all English (not Scottish, Welsh or Irish). It would be hard to imagine an early eighteenth-century Britain ruled by a Scottish king and a Scottish Prime Minister. But that is where Germany is today.

German Unification was enormously costly for Germany – as I remarked in a previous post, winding up the economic restructuring alone cost the equivalent of half the contemporary British national debt.  While the GDR was to all intents and purposes a foreign country by the 1980s, West Germany was committed to integration, and was prepared to pay its price.  Twenty-five years later this has all but been forgotten – but in the context of the relationship of Greece to the EU and the euro, it bears remembering.

Especially in the light of the kind of argument advanced by Thomas Piketty (Die Zeit 8 July 2015) that Germany benefited from debt writeoffs during the interwar years and in 1953, suggesting that Germany is today in no position to refuse Greece similar debt writedowns.  Although Piketty shows in this interview a very sketchy understanding of the postwar political, monetary and economic order, he does at least recognise that Marshall Aid and debt relief occurred because it was in the general European interest; without it, economic recovery could not continue.  German recovery was central to the recovery of the European economy.

The international economic significance of Germany is commonly misunderstood.  Students I taught in the 1990s presumed that Japan, whose population was about half the size of Germany’s again, was also a more significant exporter.  This was not true: while Germany was a smaller economy than Japan, it exported far more – including very large quantities of machine tools, chemicals and pharmaceuticals that the consumer never sees.  The World Bank’s Development Report for 1998/99 shows that Portugal and Greece had a similar population and roughly similar GDPs; but that Portugal exported 35% of its GDP, and Greece 13%.  Germany exported 29% of a GDP nearly eighteen times larger than that of Greece, with a population less than eight times as big.

Today the common European interest turns not on the problem of restarting international flows of goods and services, since in any case the Greek economy never has been a significant contributor to this.  The common interest is linked to the problems of a flawed currency union to which Greece should not have been admitted, even if it had not massaged its national statistics.  This flawed currency union exists because of the political ramifications of German Unification.

Plans for a common European currency date back at least to the early 1950s, became in 1969 an explicit objective of the European Community, but were then stalled by the collapse of the international postwar monetary order in 1973.  The idea was revived in the wake of German Unification by the French President, François Mitterand, as a means of chaining down Germany and the leading European currency, the Deutschmark.  Margaret Thatcher, poorly advised and preoccupied by some very strange ideas about modern Germany, lent her support to Mitterand before her fall in November 1990.  It could therefore be said that the Euro originated as a French plot, aided and abetted by a truly “perfidious Albion” which gave a helpful push to a project which it then refused to join.

The institutional weaknesses of the euro were exposed in the wake of the 2008 financial crisis, and the ship, now launched, began the process of being rebuilt at sea – not that unusual in the eighteenth century, but technologies were very different then.  Having developed procedures and institutions that lent the union a degree of coherence, it has been derailed once more by the need to bail out an economy that has some modern features, but which is in essence as bankrupt as the GDR.  While Greece is smaller than the GDR was, it cannot simply be annexed by the European Commission, since its population has in any case expressed its will in a referendum that rejected the only real plans anyone had for Greece’s future.  That these are the only existing viable plans was then immediately confirmed by the Greek government, which adopted them as the basis for its “new plan” at a time when a bad situation had become even worse.

And so the dilemma faced by eurozone states is that Grexit has an economic logic but dreadful political ramifications, for the Greeks as much as anyone else.  A monetary system that had begun to emancipate itself from the problems of its flawed political origins is now being asked to pursue ends that are essentially political, contaminating decision-making in the Eurozone.  Politics and economics are always interwoven in complex ways, but they are not the same thing.

In these times much use is made of the word “democracy”, without however much regard for how modern democratic orders actually function.  The recent Greek referendum was a travesty of democratic decision-making in the very country that invented the idea of democracy.  What can be said is that Germany is the model of a modern federal parliamentary democracy.  Its constitution was largely shaped by the Western allies: in fact, largely shaped by Britain, since Germany has a President who functions as an elected constitutional monarch, whereas the French have a President who functions more like an elected monarch of the more traditional kind.  The current divisions between the French and the German governments over the proper approach to Greece as a member of the eurozone are as much an effect of the differing political dynamics of the two countries as anything else.