It makes little real difference that the Greek government has won its vote of confidence. It will also make little difference if the Greek parliament approves the latest austerity plan. This is because in the end and by whatever measure Greece now owes too much to repay, without the loss of social and political cohesion, necessary for a functioning economy and orderly democratic government.
It is no good for bankers, investors and politicians to bury their heads in the sand, in the hope that the problem will go away. It will not. The Eurozone is now in crisis and most of its banks are threatened. Those of France and Germany have leant the Greeks the most, but they have insured their losses with, yes, mostly British banks, through credit default swaps and all that other paper which nobody understands. The assets of many of these giant bank balance sheets, bigger than their host national GDP, are getting very close to vanishing in the night.
If the Greeks do play ball and opt for another dose of austerity, it will buy a little time. This will soon run out, so it must be used well to achieve two things. The first is to re-structure Greece’s debt obligations so that they become realistically repayable. This may or may not be possible without Greece leaving the Euro. The second is that the finance ministers of the Eurozone must elect one of their number to become Euro Finance Minister and cede to the resulting finance ministry a large slice of economic sovereignty.
The first will cause major, but just manageable, losses to the European banking system, with knock on effects across the world. The second will cause political upheaval with unwilling countries leaving the Euro. This in combination will be an unprecedented financial and political drama that will grip the global economy and affect almost every aspect of international business and trade. There will be tough times, perhaps the toughest yet, but the house will stand and through this remodelling, will stand firm and true for the future.
The alternative is to continue in an orgy of indecision and wishful thinking, now seeping like an epidemic through the international financial class. The result of that will be a disorderly default from Greece, then Portugal, then brave Ireland, followed by Spain and Italy. That will bring the entire financial architecture down in an implosion so spectacular that the date will remain embedded in the psyche of history, like 9/11, for all time.
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