There is a truth that dares not speak its name in most eurozone chancellories. This is that if, as encouraged by their left-wing prime minister Alexis Tsipras, the Greeks vote “No” this Sunday to the revised austerity plan put forward by EU finance ministers, other eurozone states will eagerly show them the door. Tsipras is telling voters that if they renew his original general election mandate to end austerity, they will force eurozone governments to forgive Greece a great deal, if not all the country owes them. This is a crude and foolish piece of demagoguery because it is just not going to happen. If, as seems more than likely, Tsipras wins his No vote, the next time he and his officials sit down with EU finance chiefs will be to discuss how Greece will be leaving the eurozone and how best the Greek drachma can be reintroduced. While it will be a funeral for Greece, elsewhere in the eurozone many ministers and their advisers will be quietly blowing up the balloons and getting out the party hats. The problem for the Greeks is that they consider themselves hard done by. When they joined the single currency, it suddenly became possible to borrow money at virtually the same low rates as the German economic giant. Greece went on a borrowing binge, knowing that because of massive tax avoidance and extremely generous retirement and pension terms, it could never repay. No one in the country is known to have complained as rickety cars disappeared from the streets to be replaced by modern and often very upmarket models. There seemed no end to the money. Even those who understood the long-term risks shrugged and borrowed some more. It seemed absurd not to. And when the sums began to look bad, a leading Wall Street investment house helped the Greek Central Bank to fix the figures. Yet the mess is by no means entirely the fault of the Greeks. A single currency without a strong degree of fiscal union always carried the very danger to which Greece has fallen prey. A key driver behind the euro was greater political union. That was one reason why the currency's architects refused to include any mechanism for a state to ever quit the euro. Naturally, there were huge advantages for trade and business to have a common currency, but it was always taken as read that the euro would impel fiscal union. That this has not happened suggests that the euro was the right idea but at completely the wrong time. Throwing out Greece will be complex. But for the sake of other troubled eurozone economies who, unlike the Greeks, have genuinely bitten the austerity bullet, Grexit, as they call it, is now seen as essential. And something else, no less radical, is needed. The single currency's rules need a complete overhaul. The 1998 euro convergence criteria were fudged to allow Belgium and France to join when they did not in fact fiscally qualify. The single currency has never really recovered from the dishonesty of its beginnings. Nevertheless, it is used by over 330 million Europeans. In a world where the US dollar and the Chinese renminbi are just beginning a long battle for primacy, the euro and the Japanese yen are useful alternatives. But if the underlying fundamentals are poor, as some now argue is the case with the euro, the single currency's attraction for investors could collapse just as surely as Greece's gimcrack membership seems certain to do.
