Lessons of Athenian proportions
The European Union has been unraveling ever since the Great Recession of ’08 chocked credit markets on both sides of the Atlantic, and indeed beyond. One after another suffering economies turned to continental behemoth Germany for more and more loans just to stay solvent enough to discourage bank runs. That is an irony bigger than the EU itself, for the very basis of the Union was to curtail the ‘interest rate setting power’ of the Bundesbank, Germany’s central bank. Long ago, Germany agreed to the euro in return for reunification. But now the Union itself, and especially the euro, is at the mercy of Berlin, the only member with enough financial power to keep the continent running.
Greece is a particularly extreme case. It’s not that Brussels has not struggled with would-be euro ditchers before. In fact, the way Germany lubricated the Italian bailout a couple of years ago, even circumventing the democratic process by ‘installing’ prime ministers who’d agree, gave hope to countries like Germany. But so many years of austerity down the road, and with banks still shut and a 60-euro limit on daily ATM withdrawals, many Greeks have had enough. Would it really be so bad to cut the artificial umbilical cord of the euro after all?
It would definitely be for the rest of the world. The euro would plummet, providing strong bid to the dollar – and, subsequently, all dollar denominated commodities, especially fuel. What that means for others, especially the Third World, is not very hard to calculate. There are more lessons in Greece for countries like Pakistan. Athens is suffering from what happens when a sovereign is unable to meet debt obligations. And the Pakistani government, perhaps more addicted to borrowing just to function than most countries in the world, is sitting on a time bomb of its own creation. Unlike Greece and Italy, though, Pakistan will not have a Germany to fall back on. Our saviours will continue to be the Fund and the like. That, of course, means more austerity for the public, after huge devaluation, and more luxury for the elite. Unless we learn the right lessons from the EU, we are bound to drown in a sea of debt that we can never pay back. Those in charge at the finance ministry should pay very close attention.