Winnipeg Free Press - PRINT EDITION

Back to the drachma

  • Print

Last year, German Chancellor Angela Merkel warned: "Nobody should believe that another half-century of peace in Europe is a given. If the euro collapses, Europe collapses. That can't happen."

But there is now a risk the euro, the 10-year-old common European currency, might indeed collapse. The trigger could turn out to be last weekend's election in Greece.

New Democracy and PASOK, the centre-right and centre-left parties that have alternated in power since democracy returned to Greece in 1974, were abandoned by voters in revolt against the savage austerity measures those parties had accepted in order to keep the country in the euro. The beneficiaries were radical parties of the extreme right and left.

Most shocking was the rise of the neo-fascist Golden Dawn party. Its shaven-headed street-fighters give the Nazi salute and systematically attack immigrants on the streets -- and it got seven per cent of the vote. Golden Dawn, together with two other ultra-nationalist parties that are equally hostile to immigrants, the euro and indeed the European Union itself, got the votes of one Greek in five.

Even more Greeks backed the hard-left parties, which also reject the deal with the EU and the International Monetary Fund that gave Athens enough money (174 billion euros -- US$225 billion) to go on paying its immense debts. The price was brutal cuts in domestic spending in Greece, and the voters revolted against it.

Greek incomes have fallen sharply and one-quarter of the workforce is unemployed. It's not a recession in Greece, it's a full-blown depression, and Greek voters don't want to hear about how massive foreign borrowing and corruption at home got them into this mess. They just want it to stop.

The main target for their ire is the deal that forced this austerity on Greece, and the chief victims have been the two traditionally dominant centrist parties that signed it. Between them, three years ago, they got almost 80 per cent of the vote. This time they got just over 30 per cent. The missing 50 per cent mostly went to parties of the extreme right or radical left that reject the deal.

Those parties are too far apart on other issues to form a government in Athens with majority support in Parliament, so there will probably be another election in June. If no coalition that will abide by the deal comes out of that election, then the EU will halt its financial aid to Greece -- and when the next big payment on the country's debt falls due at the end of June, Greece will default.

This raises two questions. What will happen to Greece if it defaults on its debts and crashes out of the euro? More importantly, what will then happen to the common currency, and to the European Union itself?

Countries that default on their debts have a very hard time. When Argentina defaulted in 2001, there was a 60 per cent drop in domestic consumption. Bank accounts were frozen, supermarkets emptied and imported goods disappeared from the market. Inflation soared, jobs disappeared and by 2003, more than half the population was living below the poverty line.

On the other hand, Greece is experiencing a good deal of this misery already. Unemployment is as bad as Argentina's was at its worst. But in a few years, freed from its burden of insupportable debt, Argentina's economy took off. Foreign banks started lending to it again, and for nine years now, its GDP has grown at around eight per cent a year.

Many Greek voters think they can renegotiate the deal with the EU and stay in the euro. That is almost certainly untrue. But in the end, default may turn out to be better for them than staying in the euro and suffering endless austerity while trying to pay off an impossible load of debt.

The bigger question is: What happens to the euro if Greece leaves? The common currency was conceived as a vehicle for achieving the "ever closer union" that most EU politicians used to orate about, but that was putting the cart before the horse. Without a single authority that can enforce the necessary fiscal and budgetary disciplines, such a currency is bound to fail.

Last Monday Jacques Attali, the former adviser to late French president Franßois Mitterand, said the euro will not last five more years "unless there is a single European state." He's probably right, but there is obviously not going to be a single European state in five years' time.

Therefore, by Attali's own logic, the euro as we know it is doomed. But Angela Merkel is probably wrong: That is unlikely to spell the end of the European Union itself. The EU survived perfectly well for 40 years without a single currency.

The Greeks will probably be using new drachmas before long. The Spanish may also be back to pesetas and the Italians to liras before we are much older. Perhaps the euro will survive as the common currency of the rich and efficient economies of northern Europe, and perhaps not. But the demise of the euro would not mean the end of the EU nor of peace in Europe.

Gwynne Dyer is a London-based independent journalist.

Republished from the Winnipeg Free Press print edition May 10, 2012 A13

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

In the Key of Bart: Can’t It Be Nice This Time?

View more like this

Photo Store Gallery

  • Marc Gallant/Winnipeg Free Press. Gardening Column- Assiniboine Park English Garden. July 19, 2002.
  • Water lilys are reflected in the pond at the Leo Mol Sculpture Garden Tuesday afternoon. Standup photo. Sept 11,  2012 (Ruth Bonneville/Winnipeg Free Press)

View More Gallery Photos

Poll

Do you agree with the suspensions levied against three bantam hockey players for abusing game officials?

View Results

View Related Story

Ads by Google