Burning down the house

I have copied this post from the 'Athens Plus' section of the Greek Newspaper 'Kathimerini' published 3 May 2010

If Greece's economic crisis has taught the world anything - other than how easy it is to trash a country - it is how interrelated every economy is, and how political interests can have devastating effects on issues that should be purely economical. Very simply: Greece's inability to keep borrowing at exorbitant rates, coupled with the delay in decisive action to remedy the situation, led to the rapid collapse of the Greek bond market and set off a chain reaction - affecting the bonds of Portugal and Spain, driving the euro lower against the dollar and prompting losses on all Western European stock markets and Wall Street. At the same time, banks in Germany, France and a host of other countries trembled at the thought of a restructuring of Greek debt as this would seriously dent their portfolios.

In a striking example of the inextricable ties of our modern world, close to 1,000 tourists on a cruise ship lost a day of their vacation when Greek unionists, protesting planned legislation that will allow cruise ships with foreign crews to dock in Greek ports, stopped them from embarking in Piraeus. This prompted the Spanish cruise company to warn that it may suspend visits to Piraeus. If this occurs, at least 1,000 tourists per week, who are by definition in a high income bracket, will no longer visit Athens as part of their Mediterranean cruise. They will not eat at Plaka's restaurants, visit our museums nor buy souvenirs. This loss is not likely to affect the unionists who probably count every new injury to the Greek economy a trophy in their war against capitalism. But it does show how the actions of a few can affect the livelihood of many. It is a snapshot of how Greece destroyed itself - with every group taking care only of its own interests, without any consideration for the rest of society. All the groups, and their selfish interests, piled up, until Greece could no longer function.

When the European Union was revealed to be completely unprepared to deal with a collapse such as this, international markets quickly noted that this was not a problem for Greece alone but of a much greater, systemic weakness of the euro itself. Whether out of fear for their investment or because they sensed blood, or both, lenders kept driving up the cost of Greek borrowing. And as long as the Greek government delayed taking measures to make its economy sustainable, as long as Germany made of point of not agreeing to a bailout until the Greeks showed adequate remorse and discipline, the credibility of Greece and the euro were worn down by the day - indeed by the hour.

Standard & Poor's sudden downgrading of Greek bonds to junk status on Tuesday was the shock that concentrated minds wonderfully. If Greece, a member of the euro, could be allowed to fail, surely Portugal, Spain (and who knows which other country) would be sure to follow. What Germany and others thought was a fire in Greece's trousers was now spreading across the common European home. Here it is worth remembering that apart from German outrage at what is seen as Greek profligacy, Berlin's delay is inspired to a very great extent by the populist exploitation of the issue ahead of a regional election. However angry German voters may be at the Greeks, surely no responsible German politician can argue that there is any merit in showing the world that the euro has no safety mechanisms.
If anything good may come of all this, the adults in the EU will step up and consolidate the union politically, taking steps that will include checks on social security systems, labor laws and tax collection. In this way, the EU's economy will become a reflection of union rather than division. Because, whether we like it or not, we are already inseparable.