The case for a British-led Greek bailout

I do not seriously think Britain’s austerian Conservative government has a snowball’s chance in Hellas of leading a Greek bailout. Cameron and Osborne have been dragged into contributing a small amount to an EU-wide measure, having kicked up a mighty fuss and received assurances that Britain’s contribution is underwritten.

Still, I think it’d be a good idea for this government to seriously consider leading a bailout. I would have the prime minister convene a debt relief conference with (if possible) contributions from America and Canada, both of which are in late-stage talks over trade deals with the EU, and if possible South Korea, South Africa and Mexico, all of which have free trade deals already.

The IMF, Centre for European Reform and eminent economists like Paul Krugman, Joseph Stiglitz, and Jonathan Sachs all say current the current situation is unsustainable and the measures the Eurozone is imposing on Greece in return for additional loans will ruin the country even more. Debt relief (pushing back repayments) now seems to be on the table, courtesy of Angela Merkel, but that is far off and contingent on full implementation of Eurozone model austerity. Merkel has categorically ruled out a haircut (debt write off). It’s far from an Obama-style stimulus package or Sachs-model shock therapy which could actually make Greece grow again. It won’t have any impact on the currency either, because Greece will remain locked into the euro while it grows less and less competitive.

A UK-led bailout (or additional loan facility) should get US support – the US Treasury is already pushing for the IMF not to be involved in latest Greek deal because it looks totally unsustainable, so pointless, so setting up a worse crisis – but Obama is concerned about European unity and market stability, as you would expect. This could rehabilitate US and UK’s world standing, show the Atlantic alliance is not just world policeman and herald of banking crises. Indeed, Wall Street has a guilty hand in the Greek crisis so should have a hand in its redemption. The terms of the British led loan should not contribute to the austerity included in the eurozone’s demands, currently being debated in the Greek parliament. Crucially, the loan should be offered whether or not Greece remains in the single currency, and with no requirements above and beyond those the Eurozone deal already carries. Ideally, if large enough, it should convince Eurozone leaders to retract some of the harshest and most economically backward requirements.

Much more importantly, from the Conservatives’ perspective, the move would strengthen their hand in the EU. It would remind Ireland and Portugal that the UK was a major bailout contributor in their own dark days; gain Greek appreciation; reassure Germans who feel they alone are forever paying for Greece’s mistakes; and foster a tacit alliance with the French, who were apparently uncomfortable with German insistence on hard austerity and no compromise. At the moment, Cameron’s EU reform demands look a lot like Dave not only fiddling while Athens burns, but actually getting in the way of the would-be firefighters.

This would be part of the domestic political sell – by contributing voluntarily, leading the USA and Canada in a multilateral bailout, Britain would paint itself as Europe’s most constructive partner. (By working closely with EU free trade partners, it would also stand British diplomacy in good stead with these countries were the UK to vote for Brexit and need to re-sign trade deals with them after leaving.) Being a statesmanlike constructive partner is an impression Cameron desperately needs if he is to get any of his EU reforms, which polling suggests would allow him to win an ‘In’ vote in 2017. Residual goodwill with European partners would be equally important for parlous exit negotiations if Britain votes ‘Out’.

As a loan, the Treasury would find a way count it as an asset, so it would not affect Britain’s deficit and debt calculations adversely. If it boosted the Eurozone’s general stability and growth prospects, then that would be a serious contribution to medium term UK exports, which tend to dip whenever the Eurozone is in crisis.

A proper bailout for Greece should be a humanitarian priority, a matter of fellowship, and that is how it could be framed. However at the same time, a measure that brought Greece back from the brink and gave the southern Eurozone much-needed stability would clear the way for Cameron’s renegotiation. No one in Europe, certainly not Germany or France, can spend any time or political capital compromising with the UK while Greece is in this level of crisis, and attempting to do so looks everywhere between petulant and absurd to European eyes. Such stability is also a prerequisite for the Eurozone integration plans of Germany and France – who can imagine Greece or Spain agreeing to more centralised banking and economic control at present?

If the predictions that the current Eurozone solution is only kicking the can down the road and incubating an even worse crisis, then elements of the American and European political classes would also welcome a UK-led loan on the basis that, repeatedly denied by Brussels, the Greek government might turn to Moscow or Beijing for assistance. That is not a realistic possibility in the short term, but is already worrying for many EU leaders. It could even be sold as a kind of modern Marshall Plan.

The final attractive point to some UK voters would be that a stable Greece is much better able to police its borders. At the moment its islands are a destination for boat-bound migrants from north Africa and Turkey, and its land borders to the north also see irregular migrant incursion. Without adequate funding these borders are extremely porous, meaning many thousands of migrants get into Greece, which is part of the passport-free Schengen Zone that extends across Europe, right to Calais. Personally I favour a far more sympathetic UK and European approach to irregular migration, but that view is not widespread among the public: the public would be reassured by stronger EU borders.

So that’s why I think Britain should lead the EU’s trade partners to give Greece a genuine Keynesian bailout.

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