In January 1947, American president Harry Truman came up with a bold new plan for Europe. After World War II, the policy of the allies occupying Germany had been, in the words of the governing decree, to “take no steps looking toward the economic rehabilitation of Germany”.
Truman could see that a struggling, chaotic Germany wasn’t in anyone’s interests. Instead, he embarked on a massive programme of assistance aimed at rebuilding the German and wider European economy. Named after the retired general who administered it – George Marshall – it was one of the most successful policies of the last century, creating a peaceful, prosperous ally of the US out of a defeated Germany, and fending off the threat of Communist take-overs across western Europe. It’s a shame Europe doesn’t have a Truman around today, because what it needs is a new version of the Marshall Plan – one that helps Greece out of the euro and gets it back on the path towards stability.
Just about no one believes Greece has any future in the euro anymore. Not even the Greeks, judging by the turmoil within a country that has descended into political chaos. Even the European Union’s leaders appear to have lost faith. Last week, the German chancellor Angela Merkel and French president Nicolas Sarkozy raised the possibility that Greece’s future might not be inside the single currency. With the Greek economy shrinking by the day, and with the country being kept afloat on grudging tranches of bail-out money, the end game for this catastrophe is surely very close.
The British government doesn’t have much of a say in this. It is a eurozone crisis, and will have to be fixed on mainland Europe. But there is one useful role David Cameron and George Osborne could play – arguing for a real rescue for the Greeks. So far, they have been calling for a fiscal union – and urging the world to contribute more money to the IMF for its rescue packages. Both, at this stage, are pointless. Perhaps if the eurozone had been better designed in the first place, we wouldn’t have been in this mess. But when a building is on fire, there isn’t much point in calling up the architect and complaining. It is too late to change the structure of the single currency now.
Nor is there any point in giving more money to the IMF. It has already been ‘rescuing’ Greece since May last year. It doesn’t appear to be doing such a great job that it deserves even more money to carry on with the same failed policies. In truth, the only thing that is going to fix this crisis now is for the Greeks to leave the euro and bring back the drachma. There is no other way out for the country.
It is still a frightening prospect, however. The country will be bankrupt. Its banks will be ruined, and capital will flee. Greece runs a huge trade deficit – around 11% of GDP. Shut out of the capital markets, and with an almost worthless new currency, it would have no way of paying for the imports it needs.
Some speculate that if Greece does introduce a new currency, it would have to be done overnight, with the military taking temporary control to maintain order, and to stop what little money remains there from fleeing the country. For a few weeks at least, there might be no currency as new notes were printed. And the country would inevitably face a deep recession – even deeper than the one it is already in. That surely is hardly a civilised way of doing things in 21st-century Europe.
What should happen is that a date should be set for leaving the euro in three months’ time. New notes should be printed, tills changed, and banks recapitalised to prepare for the changeover. All that is going to cost money. At the same time, Greece will need generous financial assistance to help it through the first year. The gap between exports and imports has to be funded, and the government needs enough money to stabilise its finances and stop an austerity programme that is sending the economy deeper into recession.
It would, in effect, be a Marshall Plan – a way of reviving a country so that it can stand on its own two feet again. Within a couple of years, Greece should be in reasonable shape. With a devalued exchange rate, probably 50% or more, it should be able to start growing. Its beaches would be packed with tourists for most of the year. But that’s not the only hope. Turkey has turned itself into a major manufacturing hub. With its own currency, Greece should be able to do just as well.
It isn’t going to happen by itself, however. Nor is the rescue package likely to come from Paris, Berlin or Brussels. The EU technocrats are still in denial about the extent of the disaster unfolding in the eurozone. They can’t admit to themselves the project has failed. The French and German leaders both face elections next year, and their electorates are already angry about the amount Greece has cost them. Only one credible country can argue for a genuine rescue, and not another failed attempt to prop up the euro: Britain. Whether anyone will listen remains to be seen – but it would be a lot more useful than handing more money to the IMF for a strategy that has made things worse.