Act quickly to save the euro

The euro zone today is experiencing the height of a crisis that can be deadly.

It is neither the time nor the place to analyze the innumerable errors made by us all together, that have led us to where we are today. This page would not be sufficient to include them all. However, it is very important to realize that the current slippery slope will, in a very short space of time, unless we act now to rectify the situation, lead to the exit of Greece from the euro zone.

This would spell disaster for this country, living standards would collapse, savers would be wiped out and Greece for the next 20 years at least would not be able to recover from the blow, unless it becomes subservient to a foreign power.

The Grexit would also be a disaster for us.

First, because we would experience direct and indirect losses, well over the 40 billion announced everywhere. Next, because it would demonstrate to all that joining the euro zone is not an irreversible decision, that a country can leave the euro; the aim of the game would be for financial markets to correctly guess the next target and attack it: Portugal? Spain? Italy? France? All of them, undoubtedly, country after country. For us, the cost of the mere possibility of such a disaster would be enormous: Rising interest rates, recession, growing public deficit; drastic budget cuts would be needed.

Then, because this crisis is a timely reminder of something which is self-evidently the case: No single currency can expect to survive for long among countries which do not establish a joint capacity for budgetary action, i.e. tax revenues, allowing to borrow and finance necessary investments in order to compensate for differences in competitiveness among countries.

The risks of a euro zone breakup are thus enormous. This is, therefore, a matter of urgency. The French and Germans must not wait for a Greek proposal. They must, together, suggest a comprehensive four-part program:

1. On short-term challenges, Greece’s position and that of other Europeans are not so different. An agreement can be reached quickly. There is probably a need, on both sides, to make one or two technical concessions on the level of a VAT rate in the islands or the date for the start of the reduction of the subsidy for small pensions.

2. On long-term challenges, we must announce immediately, we should have done it a long time ago, that we will renegotiate the Greek public debt, by changing Greece’s debt maturity and by contributing, over the next three years, the 40 billion required for debt repayments, paid for with a loan from the European Stability Mechanism (ESM), this new intergovernmental instrument, it has never been used so far, with a maximum lending capacity of €500 billion.

3. These resources should be used, short and long term, not for yet another distribution of non-repayable subsidies, but rather to reach the core of the problem and its solution, the establishment of a Greek State with a cadastre, police, justice, public administration worthy of the name. As has been done successfully in Eastern Europe.

4. Finally, simultaneously, in order to ensure that such a crisis does not happen elsewhere, we must organize the 3rd floor of the governance of the euro zone: After the single currency and the banking union, we must achieve a budgetary and fiscal union, which the ESM can be a clever and embryonic form of, thus achieving those objectives without running a risky referendum marathon across the continent. If we wanted to be more daring, we should develop for this Funding facility its own revenue source, for example, a VAT on sales by GAFA, now zero-rated.

In a program like that, the Greeks will find the resources and expertise they lack to build the Greek State. The intergovernmental character of this agreement will reassure the Germans, where national parliaments shall have full power, thus contributing to a better control of possible slippage in the budgetary expenditure of borrowers. And France will find there the start of fiscal solidarity that it has been calling for for quite some time.

It will take time to implement such a program. The world is watching us and our ability to give meaning to the European construction is what is expected of us. If we do not do it now, soon we will all face ruin, like the Greeks; ruined by our failure to take our own commitments seriously.

The moment of truth is at hand; it will reveal and differentiate the visionary men and women, courageous, clear-headed, and resolute. From the others.