Has anyone seen the MEPs?
OVER a long weekend in Kilkenny just gone, some of the world’s foremost economic experts examined the rapidly escalating crisis. Some, such as Jeffrey Sachs (currently a special adviser to Ban Ki Moon and the youngest ever tenured professor at Harvard), had just flown in from the G20. Sachs had been personally advising Greek Premier George Papandreou.
Others such as Faisal Islam (Channel 4’s economics correspondent) had just flown in from Athens where he had seen firsthand the chaos of last week. Heiner Flassbeck (former German Minister of Finance) had personally worked with Angela Merkel and Nicholas Sarkozy. Most of the participants said the situation was already critically serious and beyond the point where Greece could be saved from leaving the euro.
There were some terrifying discussions on the impact of Greece reverting from the euro back to the Drachma. A scenario was explained which would see the Greek government introducing ‘capital controls’ – jargon for restrictions on how much cash you could withdraw from Greek banks. That would be followed within 24 hours by a closure of the banking system (possibly for just one day) as the Greek banks literally swapped euro notes for Drachma. Then the banks would re-open and a conversion rate would apply between euros and Drachma. This is likely to be very bad news for Greek savers as their savings would be reduced by somewhere between 20% and 50%.
Fortunately, at Kilkenny we had someone who could give some insight as to what it would be like to step into Armageddon. Martín Lousteau was the Minister of Economy in Argentina when it defaulted on international debts. He explained that Argentina suffered inflation of up to 50% in the years following it’s default. The pain and austerity was very difficult for the Argentinean population. However, once this hard impact had been felt, it was possible for Argentina to both grow and borrow money again. A similar situation is playing out in Iceland.
Removing Greece from the euro might, bizarrely, help some of the European nations. It is well know that Germany is the powerhouse of European industry and removing the weakest member may help strengthen the currency. But a likely consequence of Greece crashing out could be panic in Ireland. In the same way that British savers raided every branch of Northern Rock back in August 2007, Irish bank account holders could withdraw as much cash as possible, fearing a similar downgrade.
So that’s it – Europe is close to chaos. Some countries like Ireland have been suffering for several years already and face several more. The logic of borrow-and-spend more is laughable. And, when the West emerges from this economic desert, we will all face India, China, Brazil, Korea, Singapore and other who will have used the our desert years to grow their GDP at an even faster rate.
At this time, the one thing we need most is political leadership. From the hostility of the questions in Kilkenny, the local population have nothing good to say about how their politicians have managed Ireland’s finances before and after the crash. But Ireland doesn’t have a monopoly on leadership vacuums. Berlusconi’s Italy is probably worse, and the failure of Belgium to even elect a leader for the past six months is appalling.
But the key unanswered question is – has anyone seen the MEPs? This is an European crisis, after all. If there are any politicians who have a golden opportunity and also a key responsibility to show leadership, surely it is time for the UK’s MEPs to stand up?
- David Jones is a member of the Welsh Government Ministerial ICT sector panel. His view here are his own, not those of the panel