“This station was reopened not by the government, but by the struggles of its employees,” said Greek prime minister Alexis Tsipras on Thursday. “It’s a celebration of democracy”.
Writing from Athens, it’s hard to miss the sense of defiance felt by many Greek people, coupled with grim satisfaction. Having been closed as part of the International Monetary Fund’s (IMF’s) austerity drive two years ago, the Greek state broadcaster, ERT, has just gone back on air. “Today we must all be happy and look forward with optimism,” said Tspiras, as he visited the station, taking to its airwaves to note that “fair struggles are eventually vindicated”.
I spent much of last week in Tbilisi, a city of around 1.5m people on the south-eastern fringe of Europe. Sitting at the juncture of historic East-West trade routes, the Georgian capital has long been a melting pot of cultural mingling, a place where rival empires collide.
With its mix of medieval, classical and Soviet architecture, some of it charming, some of it not, Tbilisi is a good place to think about the broad sweep of foreign affairs. That was particularly true during my latest visit, as the city was hosting the annual meeting of the European Bank for Reconstruction and Development (EBRD). For several days, some of Tbilisi’s most prominent downtown buildings – including the ornate old parliament and several beautiful museums – were inhabited by a multi-cultural gaggle of officials, bankers, investors and journalists.
The dissolution of parliament last Monday, and subsequent television “debates”, means campaigning has officially begun ahead of the most uncertain election in a generation. There’s no easy way to summarise what might happen on Thursday May 7 – suffice to say that we’ll almost certainly see an indecisive hung Parliament.
The identity of the British government will then depend on frenzied negotiations that could leave the world’s sixth-largest economy in political limbo for weeks or even months. A prolonged struggle over power-sharing – which, as in 1974, might result in a second general election – could unleash big constitutional uncertainties as parties press their respective agendas. A resurgent Scottish National Party may demand another independence vote. We could even see a snap referendum on the UK’s European Union membership.
“It is extraordinary that the fundamental economic problems of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse their interest,” wrote John Maynard Keynes in his polemical classic, The Economic Consequences of the Peace. Keynes was referring to “the big four”, the leaders of main allied powers that had defeated Kaiser Wilhelm’s Germany during World War One – including British Prime Minister David Lloyd George. A Treasury official at the negotiation of the 1919 Treaty of Versailles, a 36-year old Keynes then resigned in disgust, to rapidly write one of the most influential books of the 20th century.
The terms of the Treaty were far too harsh on Germany, Keynes argued. The leaders of America, Britain, France and Italy were imposing massive financial penalties to appease their compatriots, he said, that crushed Germany’s ability to recover. “Reparation was their main excursion into the economic field,” Keynes boomed, in a work that became an instant bestseller. “They settled it as a problem of theology, of politics, of electoral chicane, from every point of view except that of the economic future of the state whose destiny they were handling”.
The US, Eurozone and China are the three largest economies on earth. Each has been hoping the other two would help pull the global economy out of its seemingly never-ending malaise. Last week brought worrying signs, though, that while the eurozone’s woes aren’t easing, on-going concerns about monetary union are now impacting alternative growth centres too, imposing real damage on commercial activity in other parts of the globe.
For most of the past year, of course, the eurozone has been on the verge of a fully-blown economic collapse. Investor angst has further intensified in recent weeks, since inconclusive Greek elections on 6th May. It is now widely accepted that Greece could be thrown out of the euro, if it keeps thumbing its nose at the austerity measures imposed by member states bank-rolling Athens’ continued sovereign bail-out.
This euro crisis is now getting extremely serious. Events are happening quickly, closing-in on policy makers and threatening to engulf us. Across the single currency zone, fears are rising and, even in the most moderate nations, populations are becoming more restive. History is locked on fast-forward. Some say that seemingly arcane economic policy debate doesn’t matter. In the UK, in particular, but across much of the rest of Western Europe too, the political and media classes have long displayed a tendency to roll their eyes whenever anybody with even a smattering of economic insight has had the audacity to show it.
For the bien pensants, ignorance of financial issues has been a badge of honor. Economics has been dismissed as a “trade”. To hold well-researched views about commerce and asset markets has been to be a suspect arriviste “striver”. Such is the prejudice of those cosseted from economic reality, their minds dulled by generations of inherited wealth. Well, such minds created the euro and what a disaster the euro has been. And the greatest disaster could yet be to come.
So now, there can be no question about it. The possibility of “eurozone exit” is real. For years, some of us have been arguing, until we were blue in the face, that the eurozone could break-up. For years the bien pensants have told us we were wrong. Only a fool would say that now. Greek exit could happen. To have worried aloud about the euro unraveling has been to be widely derided. I should know. I wrote my first national newspaper column predicting some nations could end up quitting the eurozone almost fifteen years ago, before monetary union even began.
Those of us who’ve long pointed to the technical incongruity of a single currency area with no common fiscal policy, were shouted down. Concerns about competitive variations, and different countries’ needs for exchange rate adjustment, at different points in time, were waved away, with condescending accusations that the great unwashed didn’t understand Franco-German “political will”.
A couple of weeks ago, I sat on the speakers’ podium during the opening panel of the Euromoney Bond Investors’ Congress in London. Together with leading industry experts, including senior ratings agencies officials, we engaged in a detailed discussion of the contentious aspects of the Greek debt debacle and the fate of the eurozone.
The audience was “top drawer”, the room packed with 500 of the world’s biggest bond market participants, the combined assets under management measured in the trillions of dollars. “Who thinks the upcoming Greek bail-out will be the last, drawing a line under the eurozone’s sovereign debt crisis?” asked the senior Euromoney staffer chairing the panel. “Put your hands up”.
Since last weekend’s eurozone “grand summit”, the headlines have been positive and, in the official photos anyway, the main players appear to be smiling. As such, the global equity rally goes on. Behind the rictus grins, though, the gloves remain off, the rhetorical daggers still drawn. Having launched the biggest sovereign debt restructuring in history, Athens now faces the Herculean task of persuading holders of Greek bonds to accept a “voluntary” hair-cut.
Creditors are being asked to swap their bonds for a combination of new short-term instruments, issued by the European Financial Stability Facility, and longer-term Greek government debt. If half of them agree to take the hit then, under “collective action clauses” approved by the Greek Parliament, the deal could be forced on all bond-holders.
So what if it’s totally unclear whether or not a second Greek bail-out will be agreed tomorrow? So what if, after a week of particularly nasty rioting, parts of Athens now resemble a “Mad Max” film-set? So what if the German cabinet, at the highest level, is split on whether or not Greece should default? So what that nobody can possibly know if such a default would be “orderly” or “disorderly”, with global markets remaining sanguine or unleashing months – years – of pent-up frustration?
So what if Greek a payment failure could send bond prices in other eurozone member states plummeting, spreading “contagion” across Western Europe and beyond? So what if the German cabinet’s disagreement over what to do is, in fact, only the sub-plot of deeper political schism between Germany itself and France?