The problem is plain. If new loans to Greece are arranged, even at lower rates of interest, its debt will rise. If its existing loans are rolled over or sold, the rating agencies may declare default and jittery banks and other investors will expect more interest on new lending. But the solution this week involves a degree of both, in the hope that the compromise will not be too unpalatable to too many. The alternatives – for Greece to default completely and leave the Eurozone or for the zone to announce that it will move to a common fiscal and spending policy – are next to unimaginable.
The first would lead to gloom at the prospects for the other countries in difficulty in Europe (Ireland, Portugal, Spain and perhaps Italy), and it’s not clear that anyone could effectively help them all out. The second would remove discretion over fiscal policy and spending from every country in the zone and place a burden on the richest, above all Germany, which does so well from selling to the rest; it would also make it even plainer than it is now where the power in the Union lies, and cause no little discontent in the weaker members. It would be wild to suggest that it might disrupt the peace that was the point of the project in the first place, but the result would be a kind of empire, for which the dominant powers would not want to pay and the more subservient would not find it easy to.
As everyone agrees, this week’s compromise will be temporary. It will work until it doesn’t, and then there’ll be another. And maybe this is how things will be for a decade or more. But suppose it doesn’t. Suppose that those elsewhere, in London now for instance, who say that the time has come to face up to a ‘two-tier Europe’ in ‘greater union’, prove to be right. What would that mean for people’s daily lives in the weaker economies? The answer, obviously, is ‘austerity’: more unemployment, lower incomes, smaller pensions, less public spending. There simply wouldn’t be as many euros at their disposal as there have been in the years of easy lending.
In Russia after the end of the Soviet Union many people resorted to barter. Outside desperate situations, like that of Kosovars in Kosovo before 1999, baby-sitting circles, and small and settled communities such as those of the retired in parts of the United States, this isn’t easy to arrange. How do you know what there is to exchange and with whom? And how do you guarantee the transactions? There is after all a good reason for money and markets and credit.
But there is no reason why the euro should be the only currency in the Eurozone. Existing debts, of course, are denominated in it, and so is external trade. People’s wages would have to be paid in the first currency. Their savings would have to be in it too, especially if they were to be invested abroad. And there would have to be some reasonably inflation-proof cash for imports. But a lot of food, clothes, housing, public transport, even health and education, are internal goods. For them, a second currency could work. It wouldn’t have to be coupon-based like wartime ration books. It could be a free medium that people could use as they wished for activities that had no bearing on the country’s external standing. And it could stimulate people into work they might not otherwise have.
It would be open to abuse, of course. Banks would have one exchange rate for the euro and the street another. And it might inflate. But it’s not impossible to imagine how it could work, and to the extent that it did, it might be a political good. Politicians humiliated by the austerity forced on them in the second tier of a two-tier Europe run from Brussels and Berlin (with help of a kind from Paris) could at least claim that people have some ‘ownership’ of their lives, and a national currency has a certain symbolic standing. The Swiss manage something like this, though they are of course Swiss, and otherwise different.