Gillian Tett’s Friday FT columns are always worth reading. This week she worries, and reports official US government worries, that European ministers and officials are understating the severity of the risks if Greece were to leave the euro. Earlier in the week, I argued that Greek exit may well set off a chain of events that, in time, leads to the complete dissolution of the euro, and threaten the EU itself.
Tett’s perspective on the markets risk is plausible. The honest assessment has to be “who knows”, and she herself makes that point. Against the list of points she highlights, many of which would have been compelling in 2010, one could highlight that, unlike the Lehmans failure, the risk of Grexit has now been a long time coming. About the only upside of the protracted Argentine journey to failure and default 15 years ago, for example, was that it was so long coming that in the end contagion was pretty limited.
But even if she is right about market risks, or I am about the political risks, not everything that is costly and potentially destructive can always be avoided. This isn’t a cyclone or a tsunami, but perhaps it is the macroeconomic equivalent. What is the credible effective politically-achievable way through the current storm that both avoids Grexit and puts Greece on a strong sustainable path to recovery and towards full employment? Perhaps a divine choreographer could do it but, as I noted to a commenter the other day, God doesn’t usually seem to do macroeconomic management. The interests are so diverse, the narratives are so diverse, and there is no choreographer. That is democracy – messy but better than the alternatives. Probably such diverse democracies should never have signed up for the common currency. But they did. And now it seems hard to escape a conclusion that they can only drive on through the storm, hoping to limit the damage, to a new and very different future. Perhaps no one will be better off. Perhaps it won’t happen this quarter. But – other than just buying a little more time, when patience increasingly seems exhausted and the status quo doesn’t seem particularly satisfying – what is the realistic alternative?