Greece

There is probably a reason that William Shakespeare set many of his best-loved plays in Greece and Italy. Troilus and Cressida. Anthony and Cleopatra. Romeo and Juliet. The Two Gentlemen of Verona. The setting of these Mediterranean cities and towns just ooze drama and suspense. They also exhibit a sense of foreboding and tragedy.

Over the past year, we have seen what might very well be a nail-biting Shakespearian play enacted for real. It certainly has all the hallmarks of one – drama, suspense, betrayal and of course tragedy.

At the apex of this play is Greece, a heavily-indebted country on the fringes of Europe that is quite clearly unable to pay back the money that it has borrowed. The European powers, most obviously Germany, have done its best to portray the embattled country as the villain of the play. The country’s thieving politicians looted from state coffers and then massaged the figures showing the health of the economy so that they could get into the EU.

This is probably a just criticism of the country. But there is another villain in the play, too – the European Union.

Almost ten years ago, when I started writing about the introduction of the euro, it was quite obvious that the project was half-baked and crazy. It was difficult to find a rational economist that wouldn’t question the sense of launching a single currency without proper fiscal union. Only economic advisors working for the EU seemed to gloss over this very salient point. Those who dissented were quickly pushed aside – look at the case of sacked economist Bernard Connolly. There were others.

This was the first time I had begun to understand how the EU apparatus really worked. With hindsight, I find it is possible to conclude only one of two things. Either the technocrats and politicians running Europe are stupid. Which is worrying. Or they are dishonest. Which is worrying.

I am disinclined to believe that those people who oversaw the relatively smooth introduction of the euro are stupid, which unfortunately points to my only other conclusion.

It was quite clear they knew that a single currency without fiscal centralisation would never work. I recall that, at the time, many people were talking about the Greek eventuality. Of course, it wasn’t certain that it would be Greece that would run out of money. But certainly one country or other would need to be bailed out, and it would probably be one of the Mediterranean lot. This was not an unforeseen problem. It was known that at some point, since the EU had robbed these countries of their power to devalue, there would have to be some sort of mechanism for transferring money around. In the United States, this is called the Federal Reserve. In the European Union, it is starting to take shape as a Permanent Bailout Fund.

The main problem is that a number of members in the EU – with the good old Brits up at the top – do not want greater fiscal control by Europe. They want to control their own monetary affairs, which they are, in all of honesty, doing quite a good job of at the moment.

But this crisis seems to have precipitated a call for greater fiscal control, so there is a proper mechanism for transferring money to countries that need it.

A very good argument can be made for a more centralised monetary policy, but the absolutely maddening thing is that European politicians and bureaucrats have never made it. And they have never made it because they know that it doesn’t have popular support among the countries of Europe. This isn’t democracy. It is autocracy.

For those europhiles in Brussels, the hope is that fiscal unity will follow this crisis. The alternative, it seems, would be a collapse of the euro.

This choice seems to becoming starker all the time. Last week, Italy displayed worrying signs of defaulting on its debt. Giuliano Tremonti, the finance minister, whom I have a certain grudging appreciation of, put forwards a package of austerity measures. He was immediately ridiculed in La Republica by Silvio Berlusconi, the prime minister. Italian bonds predictably slumped, but thankfully Tremonti’s package of austerity measures was passed by parliament.

If Italy falls, then there is just not enough money to bail the country out.

The problem is that European politicians are still not being honest. It took ages for them to admit that Greece was bankrupt, even when it had become clear that default was inevitable. Their great hope is that a default can be put off to 2013, when a centralised bail-out fund has been set up to address the problems that Europe is now riddled with.

The chance of the problems being postponed until then is looking increasingly unlikely. This is largely the fault of European politicians. If a year ago they had admitted that Greece was bankrupt and demanded a restructuring of their debt, instead of simply plugging the holes with German taxpayer’s money, things might look a little rosier. Not much, but a little.

But instead they told the voters that this money was all that was needed to make the problem go away. Unfortunately for the likes of Angela Merkel, the German Chancellor, voters have a way of remembering these things.

The alternative, it seems, would be a forced withdrawal of Greece from the euro (which it should never have joined in the first place) and inevitable talk of a possible break-up of the single currency.

Many commentators have said this would be a terrible thing for the economy of the world as a whole, but I’m not convinced. The terrible thing for the world as a whole would be years of stagnation and unrest in places like Greece and Italy, with governments brought to their knees by the violence of angry voters, and thuggish populist politicians slipping into their place. And all because Europe’s politicians lied to its people.

There is a highly memorable scene in the play of Anthony and Cleopatra. Anthony has suffered defeat at the hands of the Egyptian navy and believes that the Egyptian Queen Cleopatra, his lover, has betrayed him. He vows to have her killed in revenge. She hears of this plot and spreads the word that she has committed suicide. In remorse, Anthony falls on his sword. But he doesn’t die completely. He is brought to Cleopatra and whispers, with his last breath, “I am dying, Egypt, dying.” And, so saying, he joins the after-life. In response, Cleopatra kills herself by placing a poisonous asp on her breast.

And all because the two lovers couldn’t be honest with one another.

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