Adrian Hamilton: Austerity or growth? It doesn't have to be one or the other

World View: François Hollande's election provides an opportunity for a re-think

Share

Everyone is getting themselves into a fearful tizzy over Greece. To hear some of the comment, including from our own Prime Minister never mind the ever-lugubrious Governor of the Bank of England, you'd think that the end of the world, or at very least the euro, was at hand.

No, it's not, not at any rate unless Europe's political leaders are determined to drive it that way. At 5 per cent of the eurozone's total economy, the rest of Europe could either pay up to save Greece or let it fall without disaster. At heart it's not a financial crisis but a political one.

The austerity deal imposed on Greece is no longer believed either within Greece or without. Instead of panicking over the results of the election called for next month, and inducing hysteria over the domino effect of a Greek exit from the euro, Europe's leaders should be asking a more immediate question: what do they want the politicians of any party in Greece to say to the electorate when they go to the polls that will make them believe that staying in Europe will give them a better future?

Telling them that it's either to keep with the austerity programme they've signed up to or they won't get any more money actually has the reverse effect of the intended. The more that politicians outside Greece talk of the disasters that an anti-austerity vote would bring, the more the average Greek feels Europe cannot afford to let them go.

Listen to the views recorded on the street and that's what most of the Greek public seems to believe. They want to stay in the euro but they don't want to continue down a vicious cycle of cuts. Raising the spectre of catastrophe only reinforces their view that it won't be allowed to happen. The problem is, of course, that the eurozone governments don't know themselves what they want. By now, given the contingency planning, there are many who think, for perfectly good economic reasons, that Greece should head for the exit door, just as there are those who, for more political reasons, feel it is essential that the eurozone remains intact.

It's no good telling the Greeks that they must keep to their punishing regime when the whole eurozone is wobbling under the demands of a new French President for a different approach.

A rethink is not before time. Austerity on its own isn't working. Ask virtually any European politician or leader and they would agree. It's near to being the new consensus. But just as they are terrified that letting the Greeks off the hook would spook the markets with uncontrollable consequences, so European leaders are frightened of easing back from the Fiscal Pact agreed only six months ago.

They shouldn't be. The markets may act as the final arbiter in a region of debt but it is a mistake to see them as the Inquisition. They want what we all want in a way: some stability in which to judge the future and some security to make sure they don't lose their money.

What is spooking them now is not a lessening of discipline so much as a collapse of political purpose. Many of them believe, with economists, that austerity in itself has become self-defeating. Look at the bond market reaction to François Hollande's election and the Greek election. They moved very little. A Greek exit had already been discounted. A new growth pact and a different Franco-German relationship they felt they could live with.

A new pact is what EU leaders should be bending their will to now. It's not nearly as hard as commentators would make out. The mechanisms are there in the European Investment Bank, in the development of Eurobonds and in seeking ways to closer economic rather than just fiscal union.

In that sense, the choice between deficit reduction and spending is a false one. Every politician seems frightened at the word "austerity" but it's a perfectly accurate one. We will all have to tighten our belts for some years. But that doesn't preclude higher borrowing for investment or a general agreement on slowing the pace of repayment.

David Cameron's demand yesterday that the eurozone gets its house in order or face collapse was just talking his own book. He's terrified that Hollande's election may give credence to the Opposition's criticisms that he has been cutting the UK budget too hard and too fast.

But, leaving aside its tone of a Victorian ticking off quarreling princelings in the dominions, it's the wrong thing to say at this time. Hollande's presidency provides an opportunity for a European-wide rethink on policy which Cameron should be eager to take part in. It offers Britain, just as much as its partners in Europe, a vision the better to sell fiscal propriety.

It might also provide the context in which the Greeks can determine their future. A referendum would still seem the best way to decide whether they want in or out of the euro. But at least that choice should be informed by a vision in which austerity would be just part of a bigger picture.

a.hamilton@independent.co.uk

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Web Developer

£18000 - £20000 per annum: Recruitment Genius: This design and print company a...

Recruitment Genius: Lift and Elevator Contract Manager - London

£38000 - £45000 per annum: Recruitment Genius: An exciting opportunity has ari...

Recruitment Genius: Sales Engineer - OTE £40,000

£25000 - £40000 per annum: Recruitment Genius: A Sales Engineer is required to...

Ashdown Group: Systems Administrator - Hull - £32,000

£30000 - £32000 per annum + £4200 car allowance: Ashdown Group: 3rd Line Suppo...

Day In a Page

Read Next
 

Election catch-up: Just what the election needs – another superficially popular but foolish policy

John Rentoul
A Gold Ferrari sits outside Chanel on Sloane Street  

Sunday Times Rich List: We are no longer in thrall to very rich people

Terence Blacker
Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence