Readers will be forgiven for rolling their eyes as Greece resurfaces yet again as a major concern for European policymakers, Groundhog’s Day-style. Yet so it does, with the FT reporting today that the next tranche of bailout funds has been delayed due to a dispute over structural reforms—namely, the Greek government’s dragging its feet over laying off several thousand public sector employees. Prompted by this latest policy tussle (and spooked by the results of the Italian elections), EU leaders are openly sniping at each other:
“We need flexibility if we want to ensure that growth is the priority,” said François Hollande, the French president and one of the leaders of the anti-austerity camp. “Too much rigidity would mean too much unemployment.”Such calls for flexibility appeared to produce their own backlash in some northern eurozone countries.“There are no shortcuts to creating new jobs and growth in a sustainable manner,” said Jyrki Katainen, the Finnish prime minister. “Structural reforms might not bear fruit overnight, but are the best sustainable economic stimulus. Accumulating excessive debt is not.”
The existence of the euro itself is at the heart of this dispute. The stimulative measures Hollande and others are calling for would have come about more easily if the southern countries could devalue their own currencies, making their economies more competitive with the likes of Germany. The common currency makes this impossible.At the same time, northern European voters are balking at open-ended transfer payments to the south unless the southern countries take on the necessary reforms—unless Greece becomes a lot more like Germany. As anyone who’s been to both Germany and Greece can attest, that’s not going to happen overnight (if ever).Complicating all of this is a truth rarely mentioned in the north, but vividly and bitterly understood in the south: the beneficiaries of the bailouts are northern European banks who believed the foolish assurances of EU policymakers and made hundreds of billions of euros of bad investments in the south. Germany is squeezing Greece until the pips squeak to avoid billing German taxpayers for what would otherwise be a catastrophically large (and politically ruinous) bank bailout.The Greeks are weak and have only the weapons of the weak: passive noncompliance. They say yes to harsh demands but somehow never quite manage to carry out their commitments. The Italians, however, are more cunning and, because their debts are much larger and the exposure of German banks to Italy is so large, they have a lot more cards to play.There are no heroes in this tragic farce, only knaves and fools trying to avoid paying the bill for the dumbest and most expensive policy mistake since the fall of the USSR, a policy that was designed by the Brussels technocracy and implemented by the entire European political class. It is frightening and dull at the same time, and should serve as a vivid reminder to us all of the costs of a failed leadership class.