One of the many criticisms of the banking sector around the time of the current economic crisis beginning was that some of the banks, like RBS and HBOS were simply too big to fail. They simply had to be rescued to avoid the risk of them taking down the rest of the banking system and the economy with it. I’m somewhat sceptical about the claims that “the ATMs were going to run dry” if those banks hadn’t been bailed out by quasi-nationalisation, more so when applied to Northern Rock on the basis of averting a run on the system.
However, an alternative way of characterising things might be to consider those banks to have been too big to succeed. They had grown so large that they no longer were capable of being managed or regulated adequately to keep the risks of them triggering systemic failure within tolerable bounds. Rather than bailing out such egregious businesses, the approach might better have been to have helped them to fail gracefully. The underlying businesses, before their overstretch, of either were sound enough – as can at least partly be seen in the bonuses still being paid in the parts which remained profitable through the crisis.
The euro, I would suggest, is another thing that has the character of being too big to succeed. The strains of trying to tie disparate economies together while preserving nominal independence of the eurozone countries were apparent from the start. This can be seen in the way that the convergence criteria for eligibility to join the euro were “relaxed”. Now, the fiction of a single currency and the ability for eurozone governments to borrow at a rate suitable for Germany’s economy being appropriate for countries such as Greece and the other PIIGS is becoming hard to ignore or avoid.
It seems likely that the Greek people,
when they get the opportunity in January 2012 to vote on whether to accept the eurozone bailout terms (and at least a decade of severe austerity that will mean that its public debt in 2020 is still at 120% of GDP), will decide that enough is enough and reject it. As an aside, the fact that they are having such a referendum says nothing about whether the UK should have one – the Greeks need one politically because they are faced with two unpalatable choices, no alternatives and a desperate need to legitimise whatever option is chosen. On the other hand, the UK government is not being forced to make such a choice and indeed neither the Coalition nor the Opposition consider EU membership or the terms of the TFEU to be fundamental barriers to carrying out the policies they propose.
Exiting the euro and making a plan for an independent recovery won’t be easy for Greece, but at least it will be more in the hands of the Greeks themselves. They will still face austerity if they are to avoid replacing the ECB with the IMF. Maybe the time has also come for the other countries in similar or worse situations, like Italy, to take the plunge and pre-empt being forced out of the euro. Instead of keeping on the same course to increase the level of co-ordination and interdependence within the eurozone, they need to realise that the project is now clearly too big to succeed and to get a way out. It won’t be fun but putting it off won’t make it nicer.
Rather than trying to fight it, perhaps the eurozone needs to find itself a King Canute to accept that it cannot turn back the tides.
So, the Greeks won’t now get to choose and instead will have to put up with a coalition government of national unity pushing through the acceptance of the bailout package and relying on the support of the politicians who were responsible for getting them to such a parlous position in the first place. That sounds like it will work and be highly popular…