Posts tagged "EU"

Austerity will send Greece to hell, warns Alexis Tsipras

Syriza leader’s claims countered by Antonis Samaras, who says Greek government must not abandon reforms or quit euro

The two main figures in what promises to be Greece’s most electric election in living memory were on a collision course on Thursday, with one predicting “hell” if Athens adheres to EU-mandated austerity and the other forecasting a “nightmare” if the nation abandons reforms and gives up the euro.

Emboldened by yet another poll showing his party’s wide appeal, the leftwing Syriza leader, Alexis Tsipras, said the international accord that Greece had signed up to in return for rescue loans was catastrophic for the country. Instead of a rescue, the debt-stricken nation has been thrown into its worst recession since the second world war.

“With this policy [bailout agreement] we are going directly to hell,” he told CNN. “To save Europe we need to change direction,” insisted the politician who has pledged to “tear up” the €130bn (£104bn) “memorandum of understanding” that Athens reached with the EU and IMF earlier this year.

The 38-year-old, who has sent shockwaves through EU capitals with his fiery anti-austerity rhetoric, made the remarks as Syriza announced that he would be visiting Berlin and Paris next week for talks. It was unclear whom Tsipras would be meeting, although aides said the German chancellor, Angela Merkel, would not be among those lined up.

Within hours, the leading credit agency Fitch had downgraded Greece’s sovereign rating to CCC from B-, citing “the risk of a Greek exit from European Monetary Union … in the near term”.

Earlier in the day, Antonis Samaras, who heads the conservative New Democracy party, painted a very different picture in a speech that conjured images of a living hell if Athens quit the EU.

In the event of the debt-stricken country reneging on the pledges it had made, the road ahead would be a “nightmarish” one, he said.

Reversion to the drachma would mean wages, deposits and property values all being “cut in half”, and the price of imported commodities, such as food and fuel, skyrocketing, he predicted. “This is the nightmare that those who speak of a unilateral condemnation [of the loan agreement] will bring,” he told his parliamentary group at its last meeting before the 300-seat house is dissolved and the election campaign officially announced .

“The battle that begins the day after tomorrow for the new elections is not about any single party or its electoral influence,” said the 61-year-old politician, ashen-faced as he delivered the speech. “It’s about whether Greece will remain in Europe, a Europe which is itself changing. Or if Greece will be found to leave Europe, losing much and risking even more.”

New Democracy, he said, would form the core of the “front of resistance against catastrophe”.

After handing over to his successor, Panagiotis Pikramenos, a high court judge whose caretaker government will lead Greece to elections on 17 June, the outgoing prime minister, Lucas Papademos, also stepped into the fray.

The former central banker, who headed an emergency left-right “salvation government” that secured the EU-IMF sponsored deal, said he feared that sacrifices Greeks had made in the form of tax increases and pay and pension cuts would be lost if voters decided to back anti-austerity parties at the ballot box next month.

Greeks had endured the punitive cutbacks to put the economy back on track through fiscal consolidation, he said.

“The Greek people’s sacrifices were not an ‘empty shirt’,” said Papademos in an open letter to the nation, his last act before leaving office.

“Unilaterally renouncing the country’s loan agreement would be disastrous for Greece, as it would inevitably lead the country out of the euro, and possibly out of the European Union,” he wrote. “There are those who are waiting to benefit from the chaos that will follow the humbling exit of the country from the common currency.”

Next month’s poll follows an inconclusive election on 6 May which ushered in the rise of “anti-bailout” groups such as Syriza – the vote’s surprise runner-up – and decimated “pro-bailout” parties such as New Democracy and the socialist Pasok.

Speaking to the Guardian, senior Syriza officials insisted that the party, which polls suggest is poised to emerge as the biggest political force, had “no intention” of unilaterally revoking the accord.

“Austerity is over in this country and it’s the end of the memorandum of understanding,” said Takis Pavlopoulos, one of Tsipras’s top aides, referring to the accord. “You have to be a neo-liberal fanatic not to see that it [austerity] has failed,” he added, pointing out the record levels of unemployment and deepening poverty engulfing Greece. “But we will not proceed with any unilateral action that might question Greece’s membership of the eurozone.”

Greece, he said, had been among the original member states to sign up to the then EEC. As such, Athens was also a “co-owner” of the project and could not be ejected from a union it had participated in for over 30 years.

“Destructive austerity was not part of the deal for any member state to enter the eurozone. No one has the right to say ‘either you accept austerity or leave’,” added the US-trained economist.

Policymakers have claimed that renouncing the loan agreement will lead not only to a disorderly default – with ensuing chaos taking hold of a country whose economy is already on its knees – but possibly to the breakup of the 17-nation bloc.

Syriza argues that such claims are a high-stakes bluff aimed at safeguarding the status quo. Euro–exit fears were not reverberating around the corridors of the European parliament, insisted Nikolaos Chountis, the party’s sole Euro-MP.

“There are other voices that you hear that are very ambivalent about the policies being pursued in the name of resolving this crisis,” the MEP said. “And there are other countries that are in a very difficult position like Portugal and Ireland. All this scaremongering that is peddled here about Greece facing a living hell just doesn’t exist in Brussels.”

Fears that Greece would not have enough money to even pay public sector pay and pensions in the event of loans drying up were simply not true, said Panaghiotis Lafazanis, another Syriza MP. “The loans basically cover interest payments,” he said.

“They [the Europeans] can’t kick us out. The memorandum is not part of the eurozone institutional framework. It is a political choice that has been deligitimised by popular vote.”

1922 committee: loyalists and critics both win

Modernisers gain ground but fail to take key posts in Tory party’s 12-strong executive

Supporters and opponents of David Cameron achieved a score draw in elections to the executive of the 1922 committee on Wednesday, which were seen as a test of Tory backbench mood amid fears that Downing Street is losing its touch.

A bold move by loyalists to achieve “seismic change” in the elections, by removing “bloody rude” members of the old guard, achieved partial success when some critics of the prime minister were unseated. But the modernisers on the 301 Group, who had published a slate of candidates that was handed out to MPs as they voted on Wednesday afternoon, also suffered some setbacks.

The 1922 committee is the Conservative equivalent of the Parliamentary Labour party (PLP), the elected members’ trade union branch, where grievances are aired and interests defended.

The main battle for the two coveted secretary posts on the executive of the 1922 committee, which is open to all Conservative MPs not serving in government, resulted in a draw. Karen Bradley, who was on the 301 Group slate, won a post. But Charlie Elphicke, a Cameron loyalist, was beaten to the other by Nick de Bois, a popular figure with all wings of the party who was not on the 301 Group slate. The Thatcherite Chris Chope, who had been strongly supported by the traditional right, was unseated.

Afterwards De Bois tweeted: “Delighted to be elected to 1922 Comm and thank you to all those who lent me their support. Congrats to my Executive colleagues as well.”

Members of the 301 Group succeeded in unseating some of Cameron’s main critics from the 12-strong executive. Peter Bone, the MP for Wellingborough, who recently toned down his criticisms of Downing Street, lost his place. But Bernard Jenkin, the chairman of the Commons public administration committee, who had been targeted by the 301 Group, survived.

Jenkin was helped after Nicholas Soames, the veteran Tory MP, and Tracey Crouch, a moderniser elected to parliament in 2010, announced that they would be standing down. Crouch criticised the 301 Group for the “factionalisation” of the elections to the 1922 committee.

The 12 members of the executive represent a mix of the 301 Group and those who were not supported by the group. George Hollingbery, who rebelled against the government in last year’s Commons vote on a referendum over Britain’s membership of the EU, succeeded with the support of the 301 Group.

But Robert Halfon, the MP for Harlow, who is respected as a campaigner, succeeded in keeping his place on the executive without the support of the 301 Group. Priti Patel, a Eurosceptic, showed that she will become a formidable force in the party after retaining her seat with the support of the 301 Group and traditionalists on the right.

Patel’s election allows the 301 Group to claim that eight MPs on its slate won election to the 1922 executive. In another significant blow to Cameron’s critics, Stewart Jackson failed to secure election. He has been a harsh critic of Downing Street since resigning last year as parliamentary private secretary to the Northern Ireland secretary Owen Paterson after rebelling against the government on the EU referendum vote.

Organisers of the 301 Group’s slate had expressed fears that they would face a backlash after a claim by one of its organisers that it hoped to shake up the 1922 committee. Kris Hopkins, the MP for Keighley, told the Guardian shortly before the local elections: “I am confident – I am not wishing to be arrogant – that there will be seismic change in the shape and the tone and the narrative which sits in the 1922. It should be to everybody’s advantage.

“You are just going to get a new breath of fresh air coming to an establishment like this. Those new people come from a different era in British politics.”

One of the organisers of the slate said: “We had been doing well organising an under the radar operation. The Guardian piece on the elections somewhat brought this into the open.”

One traditionalist said: “The slate was awful and a rather left wing tactic. That is what the Labour party does. Tories may have slates but they are informal and are never published.”

One moderniser said: “It all felt rather distasteful. It was rather patronising to a highly sophisticated electorate.”

The old guard did suffer a clear blow in the elections for the four Tory positions on the Commons backbench business committee, which decides business in the chamber on backbench days. Philip Hollobone, who had been targeted by the 301 Group, was unseated.

Cameron’s supporters avoided a backlash after a high turnout. Ministers cannot vote in elections to the 1922, but parliamentary private secretaries can.

1922 committee election: PM’s loyalists and critics share honours

Modernisers gain ground but fail to take key posts in Tory party’s 12-strong executive

Supporters and opponents of David Cameron achieved a score draw in elections to the executive of the 1922 committee on Wednesday, which were seen as a test of Tory backbench mood amid fears that Downing Street is losing its touch.

A bold move by loyalists to achieve “seismic change” in the elections, by removing “bloody rude” members of the old guard, achieved partial success when some critics of the prime minister were unseated. But the modernisers on the 301 Group, who had published a slate of candidates that was handed out to MPs as they voted on Wednesday afternoon, also suffered some setbacks.

The 1922 committee is the Conservative equivalent of the Parliamentary Labour party (PLP), the elected members’ trade union branch, where grievances are aired and interests defended.

The main battle for the two coveted secretary posts on the executive of the 1922 committee, which is open to all Conservative MPs not serving in government, resulted in a draw. Karen Bradley, who was on the 301 Group slate, won a post. But Charlie Elphicke, a Cameron loyalist, was beaten to the other by Nick de Bois, a popular figure with all wings of the party who was not on the 301 Group slate. The Thatcherite Chris Chope, who had been strongly supported by the traditional right, was unseated.

Afterwards De Bois tweeted: “Delighted to be elected to 1922 Comm and thank you to all those who lent me their support. Congrats to my Executive colleagues as well.”

Members of the 301 Group succeeded in unseating some of Cameron’s main critics from the 12-strong executive. Peter Bone, the MP for Wellingborough, who recently toned down his criticisms of Downing Street, lost his place. But Bernard Jenkin, the chairman of the Commons public administration committee, who had been targeted by the 301 Group, survived.

Jenkin was helped after Nicholas Soames, the veteran Tory MP, and Tracey Crouch, a moderniser elected to parliament in 2010, announced that they would be standing down. Crouch criticised the 301 Group for the “factionalisation” of the elections to the 1922 committee.

The 12 members of the executive represent a mix of the 301 Group and those who were not supported by the group. George Hollingbery, who rebelled against the government in last year’s Commons vote on a referendum over Britain’s membership of the EU, succeeded with the support of the 301 Group.

But Robert Halfon, the MP for Harlow, who is respected as a campaigner, succeeded in keeping his place on the executive without the support of the 301 Group. Priti Patel, a Eurosceptic, showed that she will become a formidable force in the party after retaining her seat with the support of the 301 Group and traditionalists on the right.

Patel’s election allows the 301 Group to claim that eight MPs on its slate won election to the 1922 executive. In another significant blow to Cameron’s critics, Stewart Jackson failed to secure election. He has been a harsh critic of Downing Street since resigning last year as parliamentary private secretary to the Northern Ireland secretary Owen Paterson after rebelling against the government on the EU referendum vote.

Organisers of the 301 Group’s slate had expressed fears that they would face a backlash after a claim by one of its organisers that it hoped to shake up the 1922 committee. Kris Hopkins, the MP for Keighley, told the Guardian shortly before the local elections: “I am confident – I am not wishing to be arrogant – that there will be seismic change in the shape and the tone and the narrative which sits in the 1922. It should be to everybody’s advantage.

“You are just going to get a new breath of fresh air coming to an establishment like this. Those new people come from a different era in British politics.”

One of the organisers of the slate said: “We had been doing well organising an under the radar operation. The Guardian piece on the elections somewhat brought this into the open.”

One traditionalist said: “The slate was awful and a rather left wing tactic. That is what the Labour party does. Tories may have slates but they are informal and are never published.”

One moderniser said: “It all felt rather distasteful. It was rather patronising to a highly sophisticated electorate.”

The old guard did suffer a clear blow in the elections for the four Tory positions on the Commons backbench business committee, which decides business in the chamber on backbench days. Philip Hollobone, who had been targeted by the 301 Group, was unseated.

Cameron’s supporters avoided a backlash after a high turnout. Ministers cannot vote in elections to the 1922, but parliamentary private secretaries can.

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Cost of Greek exit from euro put at $1tn

UK government making urgent preparations to cope with the fallout of a possible Greek exit from the single currency

The British government is making urgent preparations to cope with the fallout of a possible Greek exit from the single currency, after the governor of the Bank of England, Sir Mervyn King, warned that Europe was “tearing itself apart”.

Reports from Athens that massive sums of money were being spirited out of the country intensified concern in London about the impact of a splintering of the eurozone on a UK economy that is stuck in double-dip recession. One estimate put the cost to the eurozone of Greece making a disorderly exit from the currency at $1tn, 5% of output.

Officials in the United States are also nervously watching the growing crisis: Barack Obama on Wednesday described it as a “headwind” that could threaten the fragile American recovery.

In a speech in Manchester before flying to the United States for a summit of G8 leaders, the British prime minister, David Cameron, will say the eurozone “either has to make up or it is looking at a potential breakup”, adding that the choice for Europe’s leaders cannot be long delayed.

“Either Europe has a committed, stable, successful eurozone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the eurozone, or we are in uncharted territory which carries huge risks for everybody.

“Whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system.”

Officials from the Bank, the Treasury and the Financial Services Authority are drawing up plans in the expectation that a Greek departure from monetary union – increasingly seen as inevitable by financial markets – could be as damaging to the global economy as the collapse of Lehman Brothers in September 2008.

With a second election in Greece called for 17 June, King dropped a strong hint that the Bank would take fresh steps to stimulate growth if policymakers in Europe failed to deal with the sovereign debt crisis.

“We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution,” he said.

Doug McWilliams, of the Centre for Economic and Business Research, said a planned breakup of the single currency would cost 2% of eurozone GDP ($300bn) but a disorderly collapse would result in a 5% drop in output, a $1tn loss. “The end of the euro in its current form is a certainty,” he added.

Alistair Darling, who was Chancellor of the Exchequer under the former Labour administration, said: “This has the seeds of something disastrous. It is madness. If it spreads to bigger countries, this could be really disastrous for Europe. It could consign us to years of stagnation.”

Capital flight from Greece has increased since it became clear that a coalition government could not be formed after the election earlier this month. The Greek president, Karolos Papoulias, said citizens were withdrawing their money amid “great fear that could develop into panic” at the risk of a debt default and exit from the euro area, according to minutes of their meetings posted on the presidency’s website. In little more than a week following the election on 6 May, €3bn was withdrawn from bank accounts. The central bank reported that €800m was taken out in a single day earlier this week.

The head of the International Institute of Finance banking lobby, Charles Dallara, said money was leaving Greece at a growing pace due to political uncertainty. “There has been a pickup of deposit flight from Greece, but I think that is stabilisable once you get a new government in place, if that government reaffirms its intention to remain in the eurozone.” The damage to the rest of Europe if Greece were to leave the euro would be “somewhere between catastrophic and armageddon”, he said.

The Spanish prime minister, Mariano Rajoy, told parliament that his country faced trouble financing itself as borrowing costs shoot up to “astronomic” levels. The Irish finance minister, Michael Noonan, said Dublin’s plan to return to capital markets in late 2013 might not be achievable because of the uncertainty.

The first meeting between French president François Hollande and German chancellor Angela Merkel helped to calm nerves in the markets at one stage, with suggestions that Berlin might be amenable to initiatives to boost growth in Greece and the other austerity-stricken nations of the eurozone.

But the jittery mood was underlined by a fall in European shares and the single currency late in the day amid reports that the European Central Bank was cutting off its funding lifeline to Greek banks that had failed to amass enough capital to protect them from future losses.

The ECB later said it expected the Greek central bank to use part of the €130bn bailout from the EU and IMF to ensure that the country’s banks were safeguarded from collapse, and that they would receive additional help from Frankfurt only once this had happened. Already delayed by the political uncertainty in Greece, €18bn is now expected to be released to recapitalise the banks.

Sony Kapoor, of the Brussels-based Re-Define thinktank, said: “The high-stakes game of chicken between Greek and other EU politicians must end now. Those saying that a Greek exit from the eurozone will not be a big deal either don’t know what they are talking about, or have some ulterior motives. The social, political and economic damage to the EU from a Greek exit is potentially incalculable.”

At the G8 summit, which starts on Friday, Obama will press Merkel to lean more towards a growth package for Europe, instead of pressing so hard for the austerity measures that were rejected by Greek voters.

But foreign affairs analysts said that Obama’s leverage with the European leaders is minimal. Although the US has the economic muscle to help Europe out of its mess, the Obama administration has taken the strategic decision not to become involved directly.

Instead, Obama is to use the Camp David summit for some quiet diplomacy, hoping to sway Merkel to endorse some immediate actions to help growth.

King, speaking at the publication of the Bank of England’s quarterly inflation report, said growth in Britain was weaker and inflation higher than Threadneedle Street had expected three months ago. It would take until 2014 for output to return to where it was in 2008, when Britain’s deepest post-war recession began.

“What is so depressing about it is that this is a rerun of the debates in 2007/08 – these are not liquidity problems, they are solvency problems,” King said. “Imbalances between countries in the euro area have created creditors and debtors and at some point the credit losses will need to be recognised and absorbed and shared around,” he said.

“Until that is done, there will not be a resolution. That is why just kicking the can down the road is not an answer. The European Central Bank has performed heroically in trying to buy time but that time hasn’t been used to put in place fundamental underlying solutions.”

Huge risk of euro breakup if EU fails to act – David Cameron

Germany asking too much of other nations, says Treasury, as Darling describes existing fiscal pact as madness

David Cameron will issue his starkest warning yet on the plight of the euro on Thursday, saying unless urgent action is taken there will be a breakup, adding he will do whatever possible to keep Britain safe in perilous times.

Cameron’s stark message comes only a day after the chancellor, George Osborne, had said open speculation about the eurozone was itself damaging the European economy.

Cameron and Osborne now believe that with the failure of the Greeks to form a government, a direct warning has to be given to the eurozone leaders about the scale of the threat, and the need for urgent action.

Treasury sources say they have been arguing for the introduction of eurobonds for a year, as well as a looser monetary policy: “Without that, Germany is simply asking too much of the periphery countries who do not have the benefit of our independent monetary policy and flexible exchange rate.”

Cameron will underline the message at meetings with François Hollande, the new French president, and the German chancellor Angela Merkel at a G8 summit in Washington this weekend.

In a speech in Manchester before flying to the US, he will say: “Either Europe has a committed, stable, successful eurozone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the eurozone, or we are in uncharted territory which carries huge risks for everybody.

“But be in no doubt: whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system.”

Alistair Darling, former chancellor and the man who helped stop a run on the British banks in 2008, said the crisis in Greece was now reminiscent of the run on Northern Rock, and that would look small beer in comparison with a Europe-wide crisis.

“The banks in too many parts of Europe were not cleared out in the way we and the Americans did in 2008 – so when you get all this turbulence it just adds to a lethal cocktail.”

Sounding exasperated and deeply worried about the unfolding crisis, Darling said: “The clear message that is being sent is surely now [that] they need to start thinking of a solution that is actually going to work, more than people expect.”

“The big risk is when the money comes out [and] the banks don’t actually physically have the stuff to hand over, you get cash machines going off, the doors closing and you do get blind panic.”

He described the fiscal pact signed by EU member states as madness, since “it locks countries on the edge into a downward spiral like the Treaty of Versailles at the end of the first world war with the result that their economies shrink and the debts go up. This is just daft .

“Whatever they do, they have got to do it quickly, and do more than people expect, or else the situation will get worse.The warning signs are there – that is what should strike fear into the hearts of every finance minister in Europe.”

Cameron in the domestic passage of his speech will insist he is not going to change course on deficit reduction despite the calls from business for some sort of stimulus.

Despite polls showing support for government economic policy receding, he will promise that he will take the right course and “not to dodge responsibility for dealing with a debt crisis but to lead our country through this to better times”.

Trying to give some sense of light at the end of the tunnel he will say: “We are well on the way in this journey. Since we took office two years ago, we have cut the last government’s deficit by more than a quarter.

Pointing to Wednesday’s news of rising employment he will say: “Now more than ever this is the time to stand firm. Let me be clear: we are moving in the right direction -– not rushing the task, but judging it carefully. And that is why we must resist dangerous voices calling on us to retreat.”

Promising not to return to the something for nothing economics that got Britain into its original mess he will say: “We cannot blow the budget on more spending and more debt. It would squander all the progress we’ve made in these last two, tough years. It would mean more austerity, for even longer. It would risk our future.

“It’s not an alternative policy, it’s a cop-out.”

But Ed Balls, the shadow chancellor, hammered home his argument that the domestic recession had not been caused by Europe, but by decisions taken by the chancellor in 2010.

“Rather than being a commentator idly speculating about the break-up of the eurozone – which is irresponsible – he ought to have been out there for the past year arguing with Germany for Germany to do the right thing to get the single currency to work.”

Greece’s interim government sworn in before fresh election

Judge Panagiotis Pikramenos heads administration faced with heighten concerns over Athens’ ability to remain in the euro

A caretaker government led by a high-court judge took charge of Greece on Wednesday – 10 days after it was plunged into chaos by an inconclusive poll – with the express aim of steering it to fresh elections.

The interim administration was sworn in amid heightened fears over Athens’ ability to remain in the euro. The president, Karolos Papoulias, warned this week of “fear that could develop into panic” as Greek banks were drained of deposits.

“Thank you for your trust,” the country’s new prime minister, Panagiotis Pikramenos, said as he met Papoulias. “This is purely a caretaker government, but it escapes no one that our country is going through difficult times. We must safeguard its prestige and ensure a smooth transition.”

The 67-year-old judge, who replaces Lucas Papademos, the former central banker who has been in charge of an emergency left-right coalition government for the past six months, will hold the reins of power until 17 June, when Greeks return to the ballot box. With debt-stricken Athens reliant on rescue loans from the EU and IMF, the vote’s outcome will determine whether the country remains in the euro.

Before the electoral campaign has officially begun, battle lines have been drawn between those who believe the punishing austerity cuts are a price worth paying, and those who want the “barbaric” EU-mandated measures revoked. Fury over successive waves of belt-tightening – blamed for unprecedented levels of unemployment and poverty – prompted nearly 70% of Greeks to vote for anti-bailout parties on 6 May.

“It promises to be a very tense, very bitter electoral campaign,” said political commentator Nikos Evangelatos. “All parties want the terms to be revised.”

The battle has dramatically reconfigured Greece’s political scene. On one side are Pasok and New Democracy, formerly mainstream forces whose support base was shattered at the last election as they were blamed for enforcing draconian spending cuts. Although long-time rivals on the left and right of the political spectrum, they are now referred to as centrist and pro-European.

On the other side lies an array of anti-austerity groups lead by Syriza, a leftwing alliance of radicals whose popularity has rocketed, fuelled by anger over cuts.

Successive polls have shown Syriza, the surprise runner up in the last elections, consolidating its gains.

Alexis Tsipras, the former student radical who leads the party, has called the latest €130bn rescue plan “barbaric” and “an agreement of poverty and wretchedness”. On the eve of the 6 May poll, he told the Guardian that the German chancellor Angela Merkel “should worry” if Syriza ever came to power. “We don’t want to leave the euro but we want to cancel the accord which denies people basic rights and is totally unfair,” he said.

On Tuesday, following the collapse of last-ditch negotiations to form a national unity government to navigate Greece through to European elections in 2014, Tsipras claimed that the EU, led by Berlin, was engaged in a high-stakes game of bluff. The threat to “accept more austerity or exit the eurozone” would never happen because the eurozone itself had far too much to lose.

“[Jean-Claude] Junker said it himself,” he said referring to statements made by the euro group chairman this week. “There is no question of Greece ever leaving [the bloc].”

His opponents brand Tsipras naive, a politician with a schoolboy knowledge of economics who gained power on the strength of false promises to Greeks.

“But there is no doubt that the left has the momentum, the upper hand,” said Dimitris Keridis, a political scientist at Panteion University in Athens. “It has capitalised on the anti-austerity argument, unlike the pro-European forces which should have made it much clearer what was at stake,” he said. “This time round they have to be much more focused in making the argument that it might be bad now but it will be much, much worse if Greece leaves the euro.”

On Wednesday, the outgoing finance minister, Filippos Sachinidis, said the stakes were higher than they had ever been. Greeks were faced with a choice and either way it would not be easy.

“The [June] election will decide whether we Greeks want to be in the euro zone,” he said in a radio interview. “When there are political forces that are saying it won’t be so bad to return to the drachma, it is the equivalent of saying we should leave the eurozone.

“It is our choice, our decision, but if we do that [reject the single currency] we will go back decades. All our achievements will be wiped out and it will happen in such a violent way I don’t know if we will be able to continue functioning as a modern democracy.”

Greece must remain in the eurozone | Nikos Chrysoloras

Printing a new currency while already bankrupt is suicidal – and the ensuing chaos would hurt the rest of Europe

It is striking that, when it comes to the European debt crisis, an ever increasing number of pundits, broadsheet press columnists and experts are in complete agreement with populists from the far left and the far right: the fiscal consolidation programme is self-defeating, they say, and Greece (and possibly other states in the periphery) should abandon the eurozone in order to regain their competitiveness. However, if there was one thing that the 2008 financial crisis should have taught us is not to trust the experts, especially since, in this case, they claim to know the remedy for a country which they have rarely, if ever, visited, and have no knowledge of its economic and social history.

So, although everyone is an expert on Greece these days, it seems that they have missed the fact that the country has tried the path they propose: expansionary fiscal policies, successive competitive devaluations, and the like. We’ve been there and done that during the 1980s. The result of the “miracle medicine” was average growth rate of 0.75% over the decade, average inflation at about 20%, interest rates at 33%, quadrupling of public debt and deficits of up to 16% of GDP. If that is the economic paradise of devaluations, thanks, but no thanks, I prefer the hell of austerity. Besides the fact that the younger generation has to pick up the bill for what happened in the 1980s, it is also worth mentioning that during the fiscal consolidation period that followed, in the years before the introduction of the euro, Greece enjoyed healthy growth rates, twice the EU average.

Hence, it is not reform that brought the economy to a standstill. On the contrary, the root of the crisis is the fact that Greece essentially ceased its efforts to reform after the adoption of the euro. Haunted by the stock market bubble of 1999 and exhausted by the continuous fights with trade unions, the Simitis government called it quits back then.

Growth continued to be strong though, since the public investment programme peaked ahead of the Olympics, while the sharp reduction of interest rates on government bonds and bank loans after the adoption of the euro kept the economy afloat. The international climate was also favourable for the powerhouses of the Greek economy (tourism and shipping) and tension in Greek-Turkish relations eased. Even more importantly, continuous pay rises in both the public and the private sector boosted consumption. Salary expenses in the Greek public sector increased by 117% between 1999 and 2009.

Moreover, if the experts were not sleeping during “Greek economic history 101″ lectures in school, they would notice that the Greek economy went into recession not after the adoption of the economic adjustment programme in mid 2010, but well before that: immediately after the global 2008 financial crisis, which signalled the end of cheap and easily available credit. In 2009, Greece ran a huge public deficit (15.6% of GDP) in order to avert a recession, but failed to do so (GDP contracted by 3.2%). So we tried to spend our way out of recession and again, just like in the 1980s, it did not work.

And although it is true that austerity suppresses economic output, Greece’s main problem is not austerity, but uncertainty. It should have been clear that no matter how much wages drop, and no matter how good opportunities present, no one will invest in the Greek economy and create jobs, if they are not certain about what will happen in the country. For as long as Greeks and Europeans alike do not provide a definitive and convincing answer to the question of whether Greece will remain part of the eurozone and the EU, GDP will keep contracting and unemployment will be rising.

The drachma will not solve any of the problems of the Greek economy, namely, public finance mismanagement, over-reliance on public and private consumption, lack of medium and large export-oriented enterprises, extremely high percentage of self-employed professionals, low competitiveness, tax evasion, and unbelievably weak administrative capacity.

To the contrary, we should bear in mind that Greece will not devalue an existing currency, because the drachma does not exist. It will introduce a new currency, while already being in a state of default. Leaving aside the logistics of such an endeavour, printing a new currency while already bankrupt is a suicidal move, since no one will want to buy it.

Unlike Argentina, Greece is not a net exporter of raw materials. Hence, it will have no means to support the new currency, which will have no exchange value. The country will be unable to pay in order to import oil, gas, food, and medicines with drachmas. Chaos will ensue and uncertainty will spread to the rest of the eurozone.

Strange as it may sound, what we are going through in Greece, is the best of all possible worlds. Restoring the competitiveness of the Greek economy and changing its structure is the only way for the country to survive in the absence of cheap credit.

The gigantic support programme by the EU and the IMF can only help Greece escape a crash. But the hard landing cannot be avoided. In a sense, Greece now finds itself in “the desert of the real”, as its standards of living are adapting to a world without loans, and reflect the actual production of wealth in the country. Staying in the eurozone and pursuing reform is the only chance Greece has. Hopefully, everyone will realise it before descending into chaos.

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Letters: Should Greece stay or should it go?

When its policies are under threat, Europe’s elite always try to frighten people into compliance, but it’s impossible to say that the consequences for Britain if the euro falls apart are worse than those arising from a long struggle to make the unworkable work (We agree about Europe, 14 May). The latter will demand British contributions to sustain a project we didn’t join and advised against, and if the uncompetitive Mediterranean countries can’t devalue they’ll suffer long and hard deflation. So will Germany, because its Euro markets will decline, and a failing European economy will drag the world down with it.

Breaking out to a more competitive exchange rate will be tough but creates the opportunity for growth, and once some or all of the Club Med states go the euro will rise, making Germany less competitive and stopping its excessive surpluses. That offers a much better prospect of growth and revival than any big EU infrastructure projects, which will take years, or an expanded European investment bank pouring our money down European black holes.

As for structural reforms, they are much easier when economies grow than in prolonged deflation, which despairing electorates won’t accept. Euro guff won’t bring growth, and it’s silly to say we’ll be locked out. If the EU is heading obstinately to self-inflicted disaster, locked out is the best place to be.
Austin Mitchell MP
Labour, Great Grimsby

• Ed Balls and Peter Mandelson are right, the UK should take a central role in ensuring a future of sustainable growth for the EU, with the funding of infrastructure being centre-stage. The crucial question is what kind of infrastructure. To make Europe’s future a “sustainable” one in an environmental sense will mean rejecting the usual old vanity projects of motorways, airports and high-speed trains. A really job-generating but green infrastructure programme would make all buildings energy-efficient, massively reduce use of raw materials through reuse and recycling, and improve regional transport networks. All this could generate jobs and business opportunities where people live, rejuvenate local economies and so eventually reduce public debt. If François Hollande and the Greeks’ Syriza alliance also call for a shift from austerity to greener prosperity, this could at last result in the replacement of the sado-monetarist lunatics in charge of the EU asylum.
Colin Hines
Convener, Green New Deal Group

• £130bn to rescue Greece (Europe’s elite braced for Greece exit, 15 May)? Scandalous! Yet this country alone has spent 10 times that amount to save the private banks, with no questions asked, and very little of that money is likely to be recovered. Have the banks had austerity measures imposed on them, or any measures at all? Am I missing something, or has the world gone completely barmy?
Gerard Ledger
Oxford

• Keynes understood that if you have a currency union you need a mechanism to sort out imbalances, transferring resources from creditors to debtors, otherwise the strain on debtor nations of being part of the union will become intolerable. That was the point of his scheme for an International Clearing Union, launched in 1943 and intended to be a global bank, working on the overdraft principle, so that all those nation-states needing dollars for reconstruction after the war would be able to get their hands on them. And they would run down the overdrafts by selling what they had made to the US and to each other – in other words, via growth. There is no other way.

In the end the ICU never took off – but the US provided aid after 1945 via the UN, loans to the UK and France, Marshall Aid, the Military Assistance Programme, the IMF, funds for development and private foreign investment by multinationals. It took the cold war to galvanise the US to play the part of generous creditor in the global economy, underpinning a generation of unprecedented expansion. On the other hand, the German government and its friends in Brussels and Frankfurt have by their addiction to rules (ordoliberalism gone mad) turned the euro into an economic doomsday machine, and short of a U-turn on their part the only escape is for debtors to abandon it.
Professor Scott Newton
Cardiff University

• Ed Balls and Peter Mandelson make some sound points such as the European Investment Bank funding infrastructure investments to recover growth, but are wrong in claiming that “at the heart of Europe’s problems is the fact that the eurozone does not have the institutions or political machinery to project confidence”.

It does. The European Central Bank is obliged to support the general economic policies of the union, as defined by heads of state and government. It must do so without prejudice to the internal and external stability of the currency, but defending the internal stability of the eurozone is such a policy. It could be aided by shifting a share of national debt to the EU, not least since while member states are deep in debt after salvaging banks, the EU itself had none until May 2010 when the ECB started to buy out public and private sector debt.

There are constraints on EIB co-finance because of the crisis, but these can be offset by Eurobonds issued by the European Investment Fund, which is part of the EIB Group. The Fund was designed to issue the EU bonds proposed in 1993 by Delors. It could do so now without a treaty revision, as it recently confirmed to the Economic and Social Committee of the EU. These would attract surpluses from the central banks of the emerging economies and sovereign wealth funds.

Nor do criteria for EU recovery investments need to be agreed. They have been so since 1997, not only for transport networks but also for investments in health, education, urban renewal and green technologies. These already are project-financed by the EIB rather than needing fiscal transfers between member states. Through Eurobonds the EIF could fulfil one of its original design aims of financing a public venture capital fund for small and medium firms.

Further, none of the major eurozone member states – nor Greece, Portugal or Ireland – count EIB borrowing against national debt. Nor need EIF Eurobonds do so. Converting a share of national debt to the EU and issuing Eurobonds does not need unanimity. Both could be by enhanced co-operation, which needs the agreement of only nine or more member states. If they wish, Germany, Austria, Finland or other member states could keep their own bonds but the rest of Europe could undertake a New Deal-style social investment-led recovery.
Stuart Holland
University of Coimbra

• The euro is a great concept but was badly conceived, without a central bank or political, fiscal and economic harmonisation. But the greatest problem today is how to manage state finances when billions disappear into the world’s tax havens thanks to the absence of any monetary controls and politicians granting their wealthy friends and multinationals all kinds of tax advantages and favours that have diluted tax revenues to the point where there is not enough in the kitty to maintain public services.

Even Paul Krugman has admitted that a return to temporary monetary controls could be an answer. With regard to Greece I would say that, in exchange for handing over more money, all Greek funds abroad in Switzerland or elsewhere must be returned. Then the same conditions should apply to the rest of Europe’s member states. According to the Tax Justice Network, over a trillion dollars lies in offshore banks and companies in tax havens. Recover this money and governments could not only reduce their debts but pave the way for a lowering of taxes across the board to encourage investment and growth, and increase spending power for the majority.
Peter Fieldman
Madrid

Irish referendum no to EU treaty will prompt euro exit, business leaders warn

Glen Dimplex manufacturing and GlaxoSmithKline urge voters to say yes to European stability pact on 31 May

A no vote against the EU stability treaty will force Ireland out of the euro, a leading Irish business leader has warned.

Sean O’Driscoll, chairman of the Glen Dimplex manufacturing group, said proponents of a no vote on 31 May were being “disingenuous” in claiming the republic could remain in the euro even if the electorate rejected the EU fiscal treaty.

O’Driscoll joined the Irish heads of the pharmaceutical giant GlaxoSmithKline (GSK) and the chairman of the agri-food business Greencore in calling for a yes vote in the Irish referendum at the end of this month.

Speaking at the British Irish Parliamentary Assembly in Dublin, O’Driscoll, whose company exports 30% of its household appliances to the UK, said exit from the euro was inevitable if Ireland said no to the new rules on EU states’ budgets.

“There is only one vote, and it’s a yes vote,” he said. “It is very interesting that those who are advocating a no vote will not then come out and say whether or not Ireland should leave the euro.

“That is quite disingenuous, and it’s wrong. Ireland signed up to the currency in 1999 [and] that brought rules – rules which we broke by allowing our economy to become inflated. We now need to stay within the system and we need to argue our case within the system. Yes, there has to be a balance between austerity and growth. That balance has not been secured yet but the way to get growth back on to the European agenda is to vote yes and then argue our case within the system.”

Sally Storey, the general manager of GSK in Ireland, said a no vote on 31 May would create a fresh wave of panic on the international markets.

She said multinational export-driven companies would reconsider new investments in the republic if there was a no vote and subsequent instability across Europe.

“A yes vote is very important to ensure future stability, and it is important that businesses have confidence in their investments in Ireland,” she said. “And what’s also important is that Ireland needs access to future funds from Europe if necessary. A no vote would create a new nervousness. The EU commission has said that anyone who fails to ratify the treaty can’t access emergency funds after 2013. Businesses planning ahead need to know that Ireland would have access to those funds.”

Eoghan Tonge, the group development director of Greencore, which manufactures most of the leading-brand breakfast cereals in Britain and supplies sandwiches to supermarket multiples such as Tesco, said he was vehemently in favour of a yes vote.

“I actually find this treaty different from other European ones before, which were confusing to a lot of Irish people. This one is very straightforward: we signed up to the euro in 1999 under a set of rules, and this treaty is reinforcing those rules. The rule about controlling national budgets is going to be tough but it’s a sensible one.

“In the longer run, we signed up for the euro. We got the benefits of the euro in the past, and those benefits will come back. It’s called the stability treaty, so there seems to no point to signing to an instability treaty if we say no to this.”

The two governing parties, Fine Gael, and Labour, and one of the major opposition forces, Fianna Fáil, are calling for a yes vote in under three weeks’ time; Sinn Féin, the United Left Alliance and a range of other groups from across the political spectrum are urging voters to reject the treaty.

The latest opinion polls indicate a majority in favour of the treaty, which has to be ratified under the Irish constitution. However, successive polls since the referendum was announced show a large remaining proportion of undecideds and don’t knows.

Exports close UK trade deficit

UK exports to countries outside the European Union grow – but economists warn net trade still likely to dent GDP growth

The trade deficit in the UK shrank in March as exports to the US, China and Russia grew strongly, official figures show.

The UK’s trade deficit on goods and services was £2.7bn in March, compared with £2.9bn in February, while the deficit on goods alone was flat at £8.6bn.

Exports to countries outside the EU grew 12%, driven by chemicals and cars, while the eurozone crisis continued to take its toll as EU exports were flat month on month.

While the deficit shrank slightly, economists said net trade was still likely to have knocked 0.2% off gross domestic product (GDP) growth, putting a dampener on hopes that growth figures for the first quarter of the year will be revised upwards.

Vicky Redwood, chief UK economist at Capital Economics, said: “March’s UK trade figures showed a bit of an improvement, although the external sector still looks likely to have dragged on GDP growth in the first quarter overall.”

The UK economy shrank 0.2% in the first three months of the year, following a 0.3% decline in GDP in the final quarter of 2011, meaning the country entered a technical recession.

The chancellor, George Osborne, is relying on a shift in the economy towards the private sector, particularly in manufacturing and exports, to withstand his far-reaching package of public sector spending cuts.

The deficit in trade in goods with the EU, the UK’s biggest trade partner, widened by £700m to £4.5bn in March, as exports were unchanged at £13.2bn and imports rose 4% to £17.6bn.

The deficit on trade in goods with non-EU countries narrowed by £0.8bn to £4.1bn in March, as exports rose 12% to £13.2bn and imports rose 4% to £17.3bn.

David Kern, chief economist at the British Chambers of Commerce (BCC), said the eurozone crisis and stronger pound will put pressure on exporters.

He said: “The government must take action to address the issues faced by our exporters.

“British companies, particularly small and medium-sized firms, have huge untapped potential to increase exports. Giving them extra support will help them compete on equitable terms, and will benefit the national economy as a whole.”