Greece and the euro

1 November 2011

The word economy derives from the ancient Greek word οἶκος, which means household, house or family. The household was for a long time the recognized and the most important unit of economic activity, and for a long period of time, running a successful state was compared to running a successful household. Even today, when commentators are in search for suitable analogies, they often compare the finances of a state with those of a household.

Greece’s house has been in a huge mess, for a number of years, and it certainly looks as if it is threatening to bring down the whole world economy with it. Or put it another way, the Greek house is on fire, and it’s threatening to burn down rows of European houses, and beyond. It will have half of its debt written off and money pumped in, yet there are political uncertainties as regards Greece’s ability and willingness to push ahead with the concomitant austerity and fiscal measures, especially with the mooted referendum.

The problems in Greece were and are not ascribable to the currency as such, but to deep structural problems. In other words, Greece would have been in trouble with or without the euro. Perhaps being outside the euro may have helped Greece because it could devalue its currency, but how could have a highly indebted country living on deficits benefited from a weak currency? What does Greece export and what natural resources does it have? Cheaper holidays may attract tourists, but tourism alone is probably insufficient to solve Greece’s woes.

At this juncture and for the foreseeable future, Greece needs the euro, or at least the backing of the eurozone. Why would anyone else willingly lend money to Greece, after what just happened? As it is, there are people who are wondering if the latest package and a 50% write-off of the debt are sufficient measures to avert a complete collapse of the Greek economy and society.

And what about the euro? The euro is too big to fail: it is in no one’s interests for the common currency to fail. The consequences of the euro collapsing is too catastrophic to contemplate that other economies will pump money to save it. At the moment, Greece can make life difficult for the euro, but the euro probably does not need Greece. Perhaps there comes a day when Germany, France and others, where the people and not necessarily the politicians, come to the opinion that the euro is better off without Greece.

For some reason, this does not feel like the end of this crisis, not even the beginning of the end: it feels as if we are still right in the middle of it.