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Brexit, devaluation, Europe, greece, Grexit, IMF, Moody's, Roger Bootle, UK
The news this week that Dutch taxpayers may never recover EUR12 billion handed over to an ungrateful Greece as part of its eurozone bailout contribution should neither come as a surprise nor impede efforts to get the sick man of Europe out of the rich man’s club.
It doesn’t appear that Greeks would ever be keen to leave the Eurozone if the money kept arriving. But of course their view has changed dramatically now that austere conditions have been attached to bailout money – let alone the prospect of one day returning that money.
A Greek debt default could come soon but to countries neighbouring Greece the idea of not getting the cash back is itself starting to become destabilising.
Kees Vendrick of the Dutch court of audit last week made the depressing admission that the money won’t return to The Netherlands.
In total Greece has received EUR240 billion so far from eurozone member states as well as the International Monetary Fund, and Vendrick suggested none of it was coming back.
That may support why a sanguine Madame Christine Lagarde, IMF chief, suggested last week that it was possible for Grexit to occur. She later said she was confident a EUR300 million loan would be repaid by Greece. Midweek Greece reneged to pay.
Writing this week in the Daily Telegraph veteran economist Roger Bootle elegantly explained why a Grexit, while devaluing the new Greek currency, would not mean hardship for that country. It would boost exports in a country badly in need of reflation where the jobless rate is 25% and would therefore not mean the kind of negative trap experienced in the UK in 1967 when sterling on fixed exchange rates was devalued in an era of full employment and subsequently needed austerity measures.
Leaving the euro would be destabilising for much of Europe and would mean mostly Germany finding any remnant hopes of bailout repayment from Greece even more elusive.
But we already know that Europe has been run by zealots in the past 20 years – more intent to preserve its size as a Euro club than to check the validity of its members’ health.
Such poor membership policing has led to weak economies dragging the stronger economies down and discouraging the wealthiest such as Norway or Switzerland from joining the European Union.
Ironically perhaps it isn’t just the poorest nations like Greece that might prosper outside the Eurozone. Rich donors like the UK might benefit from Brexit, the UK’S exit from the wider European Union, too.
Naturally an exit by the UK would require renegotiating trade terms with Europe. Hence Moodys warning of this need earlier this week was no great revelation. Stands to reason negotiations would have to follow.
But there’s no reason to suppose that Britain would not benefit the way other European nations have by being out of the EU.
Norway and Switzerland still comply with relevant European legislation but don’t have to pay Europe. And Iceland melted down its banks in extreme crisis in 2009 and now prospers again.
When Britain last asked it’s people to vote on the EEC, the titular predecessor of the EU, a single market was not yet established and it was Britain that was Europe’s sick man. That was in 1975.
But in 2015 non-eurozone Britain fares better than the Eurozone in recovery and it’s no certainty that the majority in a referendum wouldn’t vote for Brexit.
Much to ponder.