Defaulting Greece

By Mark Seddon

It was one of Labour’s most successful – in terms of winning elections – leaders, Harold Wilson, who realised that the only way to lance the division in his party over Europe was to hold a referendum. That was back in 1975. Since then, Labour has gone from having a policy of quitting what was the Common Market to being a pro-European Union political party. Back when Margaret Thatcher was at her zenith, it was quite understandable that the trade unions and the then Labour leadership took refuge in the vision of a social market Europe offered by Commissioner Jacques Delors, the veteran French Socialist. Ever since, the Left has largely stopped thinking about Europe, and kept on napping right through the Blair years when the party’s MEPs were invariably asked to vote with the Right rather than the Left – especially when contentious new labour or competition law was being enacted.

There was less agreement over the Single Currency. Tony Blair was very much in favour of Britain joining, as were many of the commentariat in the liberal press. The Euro for them was more than a new currency; it was an article of faith in the brave new World of endogenous growth, credit, property and dot com booms. Britain’s then Chancellor, Gordon Brown had also worshipped at the feet of Alan Greenspan and the Federal Reserve, but fortunately, very fortunately, perhaps a combination of Calvinist reserve and Treasury conservatism stayed his hand. Britain did not join the Euro zone.

Despite that, under the provisions of the Lisbon Treaty, members of the EU who are outside the Euro zone are obliged to stump up for what are loosely described as ‘National Disasters’. It is a mark of just how serious the situation is in Greece that this constitutes a ‘natural disaster’, and Britain may be asked to stump up. In truth the Euro zone has no other strategy but to stump more cash for the beleaguered Greeks, because there is no plan to cope with the consequences of Greece defaulting. But either way, the banks are set to lose according Charles Lumas of Lombard Street Research. Which is why it might make more sense to shore up the banks – as Gordon Brown and Alistair Darling did here – than funnel yet more cash to Greece. In any event, ordinary Greeks are now really hurting. They never asked for their Drachma to be subsumed into the Euro, nor were they aware that Greece was allowed to bend the rules to get in. But for a time it suited many of the big European banks to extend more and more credit to a country that no longer had the tax base to pay for what it is was spending. Those Germans, who sensibly took the view that swapping the Deutschmark for what they called the ‘Euro Drachma’, were absolutely right.

Greece should be allowed to default and regain its currency. The Euro zone may shrink in the process, but it would be more realistic for it.

But with this shrinking will come ever more strident demands for ‘ever closer European Union’ as the Brussels brigade tries to extend its control over the economic, social and labour policies of the EU. Unlike the days of Jacques Delors and his social chapter, ‘ever closer union’ would be built around increased privatisation, ‘Mode 4’ importation of cheap labour and a ratcheting up of the failed free market model.

So we now face a choice in Europe, such as we have not in over forty years, and as such we need to be aware of the arguments at stake. The People’s Pledge – which is campaigning for an EU referendum aims to get the ball rolling with an October first National Congress. Whatever your views, there will at least be a debate and you can find out more about it here.