The problem in the Eurozone is Germany. As has been previously posted a core principle which allows capitalism to function is the need for all capital structures to fail. This is the case with individuals, businesses, corporations, municipalities and countries. Not only does this principle allow for renewal when things go wrong, it also supplies the space for new innovation and enterprise to seize the opportunities such failures leave open. Greece went bust five years ago, when chickens set free by lax lending criteria and greedy investors who failed their own obligations of due diligence and lent far too much to Greece, came home to roost.
The correct response at that point was to write off most of Greece’s debts so that the mountain was reduced to a manageable hill, which could be serviced by an expanding economy. To achieve that Greece’s economy would have required a reboot; that required not more loans but new money. That meant that the ECB would have to print some to top up the failed financial system in Greece so that it could function and expand. Markets would have been hit hard and Germany would have been faced with its own major bank rescues on the lines of the US, UK and Ireland.
But the crisis would have come and gone and the Euro would have shown that in spite of the fact that it had no government, treasury or person in charge of economic policy, it could function as a regular currency. But Germany said no to the debt write off and no to printing money. It took the line of high principle ‘people and countries must pay their debts’ and bowed to haunted memories of runaway inflation in Germany in the 1920s. It instead insisted on a programme of more loans in the form of a bailout and all kinds of strictures upon Greece’s domestic policy to correct its errant and spendthrift ways.
This was not a coherent financial rescue. It was a mixture of loan sharking (loan sharks lend to those who cannot pay back and then lend them more and more to cover the interest and repayments) and a punishment detail. It also required a surrender of sovereignty by the errant country on a scale previously only known through military occupation. Five years on it has not worked. Indeed the crisis is now worse because it is causing people to doubt not just Greece’s well being, but the integrity of the Euro and the viability of the EU. Exposed by the saga are not just financial issues, but those of governance, judgement, democracy and competence.
It is not yet too late, but to save the day Germany has to abandon its prejudices and get real. It must smile and forgive. After all a smiling world has forgiven it for a good deal in the past. A very great deal in fact. Perhaps Germany is more forgiven than any other country ever.