Bill Jamieson: Greek drama entering its final act

Greece could follow the example of Argentina, which went through a successful debt re-scheduling. Picture: Getty

FAMILIAR with these headlines? “Greek drama enters its final act”; “Markets fall as deadline looms”; “euro on the brink”.

So long has the Greek crisis run, so many have been the “final deadlines with creditors” and “last gasp” extensions, drama fatigue has set in. Six years since this saga began, we have almost grown inured to a never-ending series of “make or break moments” and cliff-edge twists and turns.

Dire predictions have been made on the consequences of Grexit – a Greek exit from the euro. Currency chaos, bank runs, breakdowns in public services and shockwaves ripping across European financial markets.

What could be worse?

But history often proceeds by a series of catalytic events that concentrate attention and force much needed change.

Might Grexit offer the best long-term hope for Greece? And, as important, might such a deeply disruptive event provide the catalyst – at last – for a eurozone that has been paralysed by this saga?

The very duration of this crisis has exposed a profound failure of core Europe and its institutions and their inability to cope with problems of this sort. And it has for too long diverted policy attention from deep structural problems elsewhere in dire need of action.

Greece has been in the Last Chance Saloon for years. But this time, with the IMF delegation walking out of talks with the Greeks after just 45 minutes and blunt talk of “major differences” between it and Athens “in most key areas”, it does look as if a final moment of truth is near.

The Greek prime minister, Alexis Tsipras, has accused the IMF of having “criminal responsibility” for the situation in his country and has lashed out at the EU and IMF for trying to “humiliate not only the Greek government… but humiliate an entire people”.

This prompted an angry response from EU president Jean-Claude Juncker. “We have been here many times in the last six months, but the conciliatory language has disappeared [to be] replaced by acrimony.”

The prospect of Grexit has been hitting financial markets all this week.

Greece owes €1.5 billion (£1.07bn) to the IMF, due by the end of the month. It is due to pay a further €450 million on 13 July, along with €3.5bn to the European Central Bank on 20 July and €3.2bn on 20 August.

But the €7.2bn that a deal with eurozone governments and the IMF would unlock would not even cover Greece’s debt payments until 20 August.

So on and on it goes. Greece would yet again have “only days” until it runs out of cash.

The country’s economy has already shrunk by a quarter since the crisis broke. Unemployment is running at 25 per cent. Youth unemployment is grazing 50 per cent. A Greek parliamentary budget office report revealed that some 6.3 million Greeks are threatened by poverty, with some 2.5 million already living below the poverty line.

The country has been mired in austerity by a debt burden equivalent to an unsustainable 177 per cent of the country’s gross domestic product. Debt default, or fears of one, would trigger turmoil that would bring capital flight, forcing the country’s central bank to print its own currency.

Germany’s EU commissioner Guenther Oettinger this week has talked darkly – as German officials are wont to do on Greece – of creditor powers having to draw up urgent plans to cope with social unrest and a breakdown of energy supplies and medicine as soon as July.

Economists at Germany’s giant Commerzbank estimate the economy would contract by another 10 per cent in the first year after a Grexit. It reckons the new drachma could plunge by 50 per cent or more against the euro, bringing sharply higher prices for imports.

Grexit would also send shock waves across Europe and deal a major blow to confidence in the single currency. That Germany has continued to stand firm against any further concessions to the left-wing Greek government speaks volumes about the collective mood of exasperation, given that it has been the greatest champion of the single currency and the entire European “project”.

It all looks too awful to contemplate. But the alternative is scarcely better – yet more prolonged wrangling with Greece’s creditors and more “last chance crisis summits” in Brussels stretching years ahead.

Many, both in the government and outside, believe such trauma could clear the way for longer-term economic recovery – and stir the eurozone to take action on its wider problems.

For Greece, a sharply lower currency offers the prospect of an escape from a debt burden that has crippled consumption, investment and growth. It would bring about debt write-down and re-scheduling that should have been undertaken years ago. It would catalyse a fresh start. It would help domestic producers against imports. And travel to Greece would become much cheaper, giving a desperately needed boost to the tourist industry. Argentina went through a debt re-scheduling and devaluation – and saw its economy recover sharply.

And for Europe, too, it would bring an end to years of cliff-edge existence that has gripped policy-making since 2010. After all, it can hardly present itself to Greece as a model of economic success. Unemployment across the eurozone stands at 11 per cent, with youth unemployment more than double that. Productivity growth is virtually zero and government debt is over 90 per cent of GDP.

When it comes to economic growth, last year’s eurozone performance at around 1 per cent is pathetic for an economic bloc that should by now be much further up the recovery curve.

A resolution would offer the prospect of a Europe freed up to address its pressing economic problems elsewhere. Europe, says Dr Victoria Bateman, fellow in economics, Gonville & Caius College, Cambridge, and fellow of the Legatum Institute, now stands “at a momentous point in time” and must embrace structural reform and think big “if it is to dig itself out of the mess”.

A Grexit and catalytic end at last to this long drawn out Greek drama? Consider the bleak alternative. Bring it on.