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FT > MĂnchau > Greece's brutal creditors have demolished the eurozone pr
nettime's_shocked_therapist on Tue, 14 Jul 2015 17:13:07 +0200 (CEST)


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FT > MĂnchau > Greece's brutal creditors have demolished the eurozone project


<http://www.ft.com/intl/cms/s/0/e38a452e-26f2-11e5-bd83-71cb60e8f08c.html>

Greece's brutal creditors have demolished the eurozone project

Wolfgang MĂĽnchau

Stripped of ambitions for a political and economic union, the bloc
changes into a utilitarian project

A few things that many of us took for granted, and that some of us
believed in, ended in a single weekend. By forcing Alexis Tsipras into a
humiliating defeat, Greece's creditors have done a lot more than bring
about regime change in Greece or endanger its relations with the
eurozone. They have destroyed the eurozone as we know it and demolished
the idea of a monetary union as a step towards a democratic political
union.

In doing so they reverted to the nationalist European power struggles of
the 19th and early 20th century. They demoted the eurozone into a toxic
fixed exchange-rate system, with a shared single currency, run in the
interests of Germany, held together by the threat of absolute
destitution for those who challenge the prevailing order. The best thing
that can be said of the weekend is the brutal honesty of those
perpetrating this regime change.

But it was not just the brutality that stood out, nor even the total
capitulation of Greece. The material shift is that Germany has formally
proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance
minister, insisted on a time-limited exit -- a "timeout" as he called
it.

I have heard quite a few crazy proposals in my time, and this one is
right up there. A member state pushed for the expulsion of another. This
was the real coup over the weekend: not only regime change in Greece,
but also regime change in the eurozone.

The fact that a formal Grexit may have been avoided for the moment is
immaterial. Grexit will be back on the table when you have the slightest
political accident -- and there are still many things that could go
wrong, both in Greece and in other eurozone parliaments. Any other
country that in future might challenge German economic orthodoxy will
face similar problems. This brings us back to a more toxic version of
the old exchange-rate mechanism of the 1990s that left countries trapped
in a system run primarily for the benefit of Germany, which led to the
exit of the British pound and the temporary departure of the Italian
lira. What was left was a coalition of countries willing to adjust their
economies to Germany's. Britain had to leave because it was not.

What should the Greeks do now? Forget for a moment the economic debate
of the past few months, over issues such as the impact of austerity or
economic reforms on growth. Instead ask yourself this simple question:
do you really think that an economic reform programme, for which a
government has no political mandate, which has been explicitly rejected
in a referendum, that has been forced through by sheer political
blackmail, can conceivably work?

The implications for the rest of the eurozone are at least as troubling.
We will soon be asking ourselves whether this new eurozone, in which the
strong push around the weak, can be sustainable. Previously, the
strongest argument against any forecasts of break-up has been the strong
political commitment of all its members. If you ask Italians why they
are in the eurozone, few have ever pointed to the economic benefits.
They wanted to be part of the most ambitious project of European
integration undertaken so far.

But if you take away the political aspiration, you may end up with a
different judgment. From a pure economic point of view, we know that the
euro has worked well for Germany. It worked moderately well for The
Netherlands and Austria, although it produced quite a degree of
financial instability in both.

But for Italy, it has been an unmitigated economic disaster. The country
has seen virtually no productivity growth since the start of the euro in
1999. If you want to blame the lack of structural reforms, then you have
to explain how Italy managed decent growth rates before then. Can we be
sure that a majority of Italians will support the single currency in
three years' time?

The euro has not worked out for Finland either. While the country is
considered the world champion of structural reforms, its economy has
slumped ever since Nokia lost the plot as the world's erstwhile premier
mobile phone maker. Whether the euro is sustainable for Spain and
Portugal is not clear. France has performed relatively well during the
euro's early years, but it, too, is now running persistent current
account deficits. It is not only Greece where the euro is not optimal.

Once you strip the eurozone of any ambitions for a political and
economic union, it changes into a utilitarian project in which member
states will coldly weigh the benefits and costs, just as Britain is
currently assessing the relative advantages or disadvantages of EU
membership. In such a system, someone, somewhere, will want to leave
sometime. And the strong political commitment to save it will no longer
be there either.

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