Wednesday, June 22, 2011

Why won't the EU's leaders accept the euro is fatally flawed - and allow Greece to go bust? - 21st June 2011

Yesterday afternoon, Jack Straw became the first senior Labour politician to declare that Greece would leave the euro.

Even BBC correspondents, who often content themselves with parroting European Commission press releases, have grasped that something is wrong.

Little wonder, when Greece’s debt is now growing faster than its economy; making it a mathematical certainty that it will not pay its creditors. The international markets know it: long-term Greek government debt is trading at around two-thirds of its nominal value.

Indeed, the only people who still believe (or pretend to believe) that Greece can remain solvent are the eurozone finance ministers, who have just agreed another bailout.

In a statement of stunning complacency, they praised Athens for a ‘significant and necessary adjustment effort’ which would contribute to ‘avoiding a default’.

They took the same line a year ago, when they offered Greece €110 billion to get through what they insisted was simply a short-term cash crisis.

Now, despite those assurances, they are set to release another €80 billion.

Such bailouts are not useless, but actively harmful: the last thing an over-indebted country needs is more loans.

Why, then, are the eurozone governments doing it?

They know that the bailouts are unpopular with their own constituents.

Every week, German newspapers bulge with stories about wealthy Greeks avoiding tax.

Why, Germans ask, should we have to pay more tax so that Greeks can pay less? Why should we have to work until 67 so that they can retire at 63?

For many Greek professionals, paying your dues to the taxman has become a lifestyle option. Read More