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Economics with its teeth knocked out
31 October 2011
The Greek prime minister’s decision to call a referendum on the proposed bailout has thrown the eurozone into chaos – will it survive? Aaron Woolner writes
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An attempt in 1989 by Poland’s prime minister Wojciech Jaruzelski to bring legitimacy to his ailing regime by holding a referendum was caustically dismissed by journalist, Adam Michnik, as, “not so much communism with a human face, as communism with some of its teeth knocked out ”.
This image gains contemporary relevance with news that Greek premier George Papandreou has called a plebiscite over the terms of the bailout deal agreed at the end of October. This desperate fudge by the eurozone tries to manage a Greek default on its unsustainable debt load without destroying the euro – a move which now resembles economic policy minus a few molars.
Not that expectations of a solution were high: one economist Global Investor/ISF heard speak in the run up to the summit dismissed eurozone politicians’ abilities and foresight in blunt terms: “They are all idiots, and they don’t have a plan – or even an idea of how to find one.”
Sadly a line clearly thrown out to amuse a pack of financial hacks has proved accurate. The agreement to impose a 50% haircut on Greek debt and simultaneously ramp-up the size of the European Financial Stability Facility has achieved nothing other than to increase pressure on the eurozone.
Given the European Union’s recent decision to seize control of the decision to impose short selling bans from member states, it’s ironic that Greek voters have effectively been given an opportunity to short the eurozone itself.
And why should they save the currency? As one hedge fund manager told Global Investor/ISF, this month: “Greece has been sacrificed to save French and German banks,” a pact which offers the Sarkozy/Merkel axis a favourable deal, but is less generous to Greek voters.
Even if some alternative universe exists where the Greeks can be persuaded to don the hairshirt of austerity and become a penitent for the sins of the eurozone, the size of the governance gap behind the currency union’s problems begs the question, ‘how will it solve the next crisis’?
Or, will the euro survive long enough to create a second crisis?
In 1989, Polish communists – and their comrades across eastern Europe – were unable to overcome protests against a system which combined economic stagnation with a grotesque democratic deficit. Can the eurozone’s technocrats go one better?