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In 1915 Robert Frost wrote 'The Death of the Hired Man'. Frost wrote that "home is the place where, when you have to go there, they have to take you in". Frost also defined home as "something you somehow haven't to deserve". I think there is something deep in Frost's words, and I think we can apply Frost's idea and his definitions to the understanding of Europe's crisis.

The important question for Europe now is how it sees itself. This self-definition matters because it guides choices, and choices become actions, in this case with important consequences. Is the eurozone a club? A federation? A family?

'Instapundits' abound in the coverage of the Greek situation, which is why I've stayed away from commenting on the unfolding mess until now. Pundits generate more heat than light, generally, but there is a very important point I feel has not been made yet.

Greece is a part of the European family, it can't alter its relationship to Europe fundamentally, and so we should calm ourselves when discussing a Greek exit from the 17-member eurozone, which is the subset of European Union countries that use the euro as their only legal tender, or the European Union, a confederation of 27 States, one of which is Greece.

The world is closely watching the implosion of the Greek economy. Official funding from the European Central Bank is all that is keeping the Greek economy and Greek banks going. Nothing has worked.

A series of defaults on debt, successive austerity policies, and a wrenching general election campaign, now to be repeated, have left the Greek public wary of pro-European parties advocating staying within the eurozone, although recent polls show a swing towards pro-bailout parties.

In the last election, voters clearly chose to remain within the euro, but chose to voice their protests at further austerity. The re-run of the election is now being viewed by some as a referendum on membership of the eurozone.

This is a mistaken view.

This mistaken view comes from a misconception about the nature of eurozone membership. It is not a club, it is not a federation, it is not a precursor to some version of the United States of America.

Membership of the eurozone is membership of a family. There are no exit options, no gradation of membership, no obvious get-out clauses. Treaties are one-way documents.

Going back to the allegory: one can choose not to associate with one's family, but that doesn't change one's relationship to the family.

Greece has no need to 'deserve' its membership of the eurozone. The Greek people know this, and they voted accordingly.

Much has been written about Greek 'irrationality' in their voting behaviour, and yet they seem to have voted quite rationally, in my opinion: membership of the eurozone -- yes; austerity -- no.

More than a little calm is needed. Whether Greece leaves the eurozone or not, it's important to remember that Greece will still be within Europe, by dint of history, geography, and culture. And whether Greek citizens buy their bread with euro or drachmas, they will still be in the family.

A curious hysteria has gripped the markets for some weeks now. It is not entirely obvious why. Greece has been in deep trouble for quite some time. The youth unemployment rate for May was 51.5 pc. The economy has been contracting for several years. Harsh austerity has brought forth protracted social unrest and political upheaval.

When it comes to implementation of rescue programmes for Greece, there are no easy answers, but it does ultimately boil down to one of two choices: others paying for outstanding Greek debts, or not.

In the case of 'not', Greece defaults on all of its debt, creditors get very upset, banks go bust, a new currency is introduced, which immediately depreciates, savings get wiped out (hence the recent run on Greek banks), the economy shrinks rapidly, there is a period of disorder which may last some years, and life, ultimately, goes on.

The governments and citizens of Europe are worried about themselves, their currency, and their banks. They understand that a Greek exit would worry the markets for years to come and undermine the confidence placed in every euro ever printed.

The next time there is a crisis, the first place worried investors will go in their heads will be 'exit'. Imagine a spate of bad banks in, say, the Netherlands.

All of a sudden the fiscal situation gets worse as the sovereign bails out the banks, the price of Dutch debt begins to rise, confidence in the banks' balance sheets is eroded to zero, and suddenly, in only a few short months, the so-called serious people are talking seriously about the Netherlands leaving the eurozone.

The residual effects of a Greek exit on the remaining member states would last for decades, at least.

But the Greek people would remain, the country would remain and, most importantly, their fundamental relationship to the rest of Europe would remain.

In the case of 'other people paying', the European authorities will presumably demand the reduction of government expenditure and the imposition of further taxes, which the Greek people may not agree to.

So in this case one party will have to recognise the nature of their relationship: they are a family, and Europe is their home.

Published in the Irish Independent.

One Response to “Greece can never cut links with its European family”

  1. Dave Holden

    Interesting, but I'm not sure I see the problem as "being European", in fact I'm not sure I see Greece as any different from Spain or Italy for that matter but maybe I missed that debate. More, the politics of fiscal transfers or sharing debt - basically the need for a common electorate.

    PS. Enjoying your QuickWin book BTW.

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