Greece is being screwed down so Sarkozy can meet his deadline

Πηγή: The Independent

Hamish McRae

There is a new and ugly tone to the debate about Greece's finances. You can catch a feeling for that in the words of Angela Merkel and Nicolas Sarkozy this week. The German chancellor said: "I can't quite understand why we need a few more days... time is running out", while the French president was even more direct: not only could there be "no community money" without reform, but "the Greek government must do its homework and carry out its responsibilities".

So there: German patience is exhausted and the Greeks are behaving like naughty boys. Yet, whatever the inadequacies of previous Greek governments, the present interim prime minister, Lucas Papademos, has been working extremely hard to meet some extreme demands from the EU and IMF. They now want cuts in the fiscal deficit equivalent to another 1.5 per cent of GDP and this for a country that is in its fifth year of recession. The economy shrank by an estimated 6 per cent last year and unemployment has reached around 18 per cent. And all this pain will, even if everything were to go to plan, only cut the national debt to 120 per cent of GDP by 2020, a still unsustainable level. So there will have to be yet another bailout in a few months' time. It is hard not to feel some sympathy for the view expressed by Yannis Panagopoulos, the president of its largest private sector union, the GSEE. "What is taking place isn't a negotiation," he stated. "It's raw, cynical blackmail against a whole people."

So why have Germany and France been risking a social explosion in Greece for a deal that isn't going to stick anyway? There are, I think, two broad answers. The first concerns the impact that an uncontrolled Greek default, coupled with the country dumping the euro, would have knock-on effects for the rest of the eurozone. Portugal, Spain and eventually Italy would leave the eurozone, too. That particular bit of the European project would be dead. If, on the other hand, Greece can be kept on board for some more months, the chances of a firewall holding are much greater. Meanwhile, vilifying the Greeks emphasises the difference between Greece and other weak eurozone members.

That line of argument, however distasteful, is familiar enough. A second explanation concerns not the eurozone but France. Note that Angela Merkel has openly supported Nicolas Sarkozy in the forthcoming elections. Leaving aside the fact that such an endorsement may have unintended consequences, the motive and timing are interesting. Mr Sarkozy's principal rival for the presidency, François Hollande, has promised a reversal of the Sarkozy austerity measures, including bringing the retirement age back to 60 (from 62) and creating more than 200,000 state or state-funded jobs.

In short, it is perfectly plausible that France's next president will follow policies that are exactly the reverse of those now being urged on all the weaker eurozone states. Think of the consequences. A huge intellectual and practical rift would open up between Germany and France and the entire eurozone austerity programme would be undermined, maybe destroyed. Greece has to be screwed down now not just because of the financial deadline of bonds it cannot repay, but also because of the political deadline of the French elections.

And if France were to go down that alternative route? Well, there is a precedent. In 1981, its newly elected president, François Mitterrand, set out a radical stimulus plan, tripling the budget deficit, cutting the working week, hiring another 250,000 state workers and so on. The policy was a disaster and was reversed within 18 months. But then it was only France that was destabilised – now it would be the entire eurozone.