Why Greece negotiated the wrong issue
What is really puzzling is why Greek politicians have been so keen in essentially negotiating what is known as a ‘haircut’, that is, to have a certain percentage of their debt forgiven. The new socialist government will hardly want to submit to future austerity measures dictated by the EU, so the big question is of course, how do they think they will have an independent monetary policy while under the yoke of the euro, even if a “haircut” of biblical proportions is agreed?
We need to remember some of the reported consequences of the austerity measures, such as about 500 Greek mothers giving up their children for adoption because they were unable to feed them, or people getting infected with HIV on purpose in order to qualify for public assistance. Another measure to make food more accessible was decreed by the government, which took the unusual step of officially allowing the sale of expired food at lower prices.
What the new socialist government should have negotiated instead is a Greek exit from the Eurozone. I have written a booklet (The Euro is Dead, Long Live the Solid!) on the issue of and benefits for any country adopting a parallel currency monetary system. In the specific case of Greece under such a system, at the very beginning they could start issuing the new drachma (or whatever the name) to circulate side by side with the euro at fluctuating exchange rates, and to issue at a later time a gold-backed currency to take the place of the euro (which may not exist anymore in the near future anyway). The value of the new drachma will depend on the concrete policy measures taken by the government, but it will certainly constitute what I call a monetary ‘pressure valve’ availing the government some elbow room in the event of need, without destroying the system.
It is obvious that Germany – which I call the Hegemon in the EU – is confronted with a devilish dichotomy, namely, on the one hand she wants to keep her ‘colony’ (Greece) in the fold together with the other ‘colonies’ in Europe, not only to continue selling to them her wares in euros, but also to protect the health of the German banking system which keeps a rather unhealthy amount (€92.7 billion) in Greek bonds. On the other hand, things are getting so bad, even at a personal level among Greek and German politicians, that they may have to push Greece or let her go out of the euro. Greek politicians have resorted to unusual measures to negotiate with Brussels and the Germans, including name-calling, demanding war reparations from Germany (which were, in fact, settled long ago), and the latest being digging up a forced loan which Greece made to Germany during the occupation in WWII.
The euro was from the beginning, and still is, a flawed concept, created by misguided politicians in search of an ill-conceived legacy, cheered on by economists who should have known better but didn’t. The euro frenzy got to such a level that it resembled a country club, of which you had to be a member if you wanted to be somebody, or else become a pariah. That is why Greece (and perhaps others, too) even resorted to cooking the books in order to be allowed to become a member. Luckily, nowadays countries are beginning to see through the euro folly. Very recently, the government of Iceland officially withdrew her application to join the EU, and wants even less to do with the euro. It seems they have finally realised that after all, they do not want to become a member of what used to be a very exclusive club, and what is today hardly more than a circus.