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Thursday, November 03, 2011 


The one thing that stands out above everything else in the Eurozone crisis is just how terrified the politicians involved are, even if they're hiding it beneath the anger currently being directed at Greek prime minister George Papandreou. If it's difficult to take everything in or come close to understanding just what's at stake, and politics nerds are themselves struggling, then this piece by the continually excellent Larry Elliot more or less explains it. The fear is that should Greece default, we'll be in a similar situation to that of September 2008 when Lehman Brothers was allowed to go bankrupt. Should Greece go under, then the fear is that the contagion will then spread to Italy, although it may already have done, as bond yields are approaching unsustainable levels. The main European banks are far more exposed to Italian debt than they are to Greece, as this chart scarily demonstrates.

We all know what happened then. The banks were bailed out, interest rates were cut to almost nothing and a stimulus package then followed. The recession that could follow the collapse of the Eurozone and the default of Greece and Italy (with Spain, Portugal and Ireland possibly reneging on their debts too) would probably put paid to the early 1930s as the era known as the great depression. The room for manoeuvre is almost non-existent.

This goes some way then to explain the reaction of France and Germany to Papandreou's initial decision to hold a referendum on the bail out. First, it should be pointed out that Papandreou himself went out on a limb amongst his party in giving the impression of asking the people: he didn't tell them what he was going to do. Secondly, it may well have been a ploy: it looks tonight as though the Greek opposition, who were opposing the further austerity the bail out was going to impose may well join a coalition, with Papandreou stepping aside. This doesn't mean that they're going to carry the people with them, obviously, but it should make it ever so slightly more representative.

Even so, the behaviour of Sarkozy and Merkel (and others too) has been shocking. Last week the non-Berlusconi owned Italian press that has long despaired of the prime minister protested at the insulting manner taken by the pair towards the country and the ability of its current government to impose reforms. This was nothing to the treatment meted out to Papandreou in Cannes yesterday evening, and in turn to the Greeks themselves. It may well be the taxpayers of France and Germany that are having to stump up to bail out the country, but this is nothing to the next few years the Greeks themselves are going to have to go through. Unemployment is already 20% and the state is no longer offering some services. There is every sign Greece is being asked to put itself into a death spiral to save a failing political project, and that sacrifice is not even being slightly acknowledged.

It's this unthinking arrogance bordering on blackmail that will end up being remembered. On the surface it appears to prove the democratic deficit at the heart of the European Union, with the big nations bullying those they now admit should never have been admitted it to the Eurozone in the first place. For those of us who support the EU's intentions, if not its methods, it only seems to confirm the long-held arguments of our opponents, who have been crowing all week about how they were insulted and slandered and have ultimately been proved right, willfully confusing the Eurozone with the EU. Their case has always been that the European project has been constructed over the heads of the people themselves, and now in the ultimate expression of that the Greeks are being given no choice about their own destiny. There will always be those whom, often quite rightly, argue that through electing parties in favour of the EU we've given our consent yet this is something quite different. It's not being too alarmist to suggest there could be a people's revolution against a democratically elected government over this, if the military doesn't step in first.

An orderly (if there can be such a thing) default ought to have been engineered months ago. Instead there's been almost a year of uncertainty, with the Greeks forced to swallow a medicine that has only made things worse. We seem to have acquired a whole generation of politicians, of both the nominal left and right, who believe in institutions rather than people themselves. At the end of this there simply has to be a reckoning for all of those involved, and in truth it's been a very long time in coming.

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