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

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

BI Manager - £50,000

£49000 - £55000 per annum + competitive: Progressive Recruitment: My client is...

BI Project Manager - £48,000 - £54,000 - Midlands

£48000 - £54000 per annum + Benefits package: Progressive Recruitment: My clie...

VB.Net Developer

£35000 - £45000 per annum + competitive: Progressive Recruitment: If you're pa...

SAP Business Consultant (SD, MM and FICO), £55,000, Wakefield

£45000 - £55000 per annum + competitive: Progressive Recruitment: SAP Business...

Day In a Page

Read Next
 

The law is too hard on sexting teenagers

Memphis Barker
 

Obama must speak out – Americans are worried no one is listening to them

David Usborne
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game