Labour should break from the consensus and call for Greece to default

Labour needs to have an independent voice on Greece; the party's internationalism puts it on the side of the Greek people, writes Labour MP Barry Gardiner.

By Barry Gardiner MP (Labour, Brent North)

Labour needs to have an independent voice on Greece. Our internationalism puts us on the side of the Greek people. Our socialism should make us suspicious of the bankers. Yet we appear to be colluding in the destruction of Greek society despite the sure knowledge that the Greek economy has failed and is beyond recovery.


Europe’s politicians are in denial. They insist Greece cannot be allowed to default, yet they know the €60.5 billion of Greek debt held by the private sector falls due within the next three years. The Greek Parliament may have voted to accept the austerity package in order to get the international bailout, but the truth is this does not make Greece’s debt any more sustainable.

With negative GDP growth of minus 2% in 2009, minus 4.5% in 2010 and minus 3% projected for this year, what Labour and the rest of Europe should be asking is why on earth Germany and France seem so keen to keep Greece within the European Monetary Union. The answer is as simple as it is uncomfortable: the bulk of Greek Sovereign debt is held in French and German Banks.

Michael Cembalest, the global head of investment strategy at JPMorgan Asset Management pointed out last week that the rollover proposal is:

“…mostly designed to continue transfers from European Union taxpayers and the International Monetary Fund to French and German banks, and to buy some time – perhaps a year or so.”

But buying time is not what Greece needs. What it needs is to be allowed to leave the euro, default and restructure.

For each €100 of debt maturing in the next three years, if the banks agree to roll it over instead of calling it all in they will keep €30 in cash, Greece will receive €50 in exchange for the 30 year rollover bonds and the remaining €20 would be placed into an SPV (Special Purpose Vehicle) that will acquire top rated bonds to guarantee the total of €70 out of the original €100.

The accumulated interest rate Greece will pay for the use of this €50 will be approximately 11%. No serious investment house believes this is sustainable. But this is not Greece’s only problem with this proposal. If Greece were to raise the €30 billion it needs at a rate of €50 in every €100 this would require every single one of its 60.5 billion euros to be rolled over.

Agreement to this from all the current debt-holders is highly improbable.

Even if they did, Greece is going to lurch from quarter to financial quarter waiting to see if the rest of the EU will agree to stump up the next instalment of the bailout. This is no way to run a stable currency and Europe’s politicians ought to start accepting the consequences. If it looks like a default and it behaves like a default then it should be treated like a default and Greece should be allowed to secede from the monetary union in an orderly fashion.

The Greek economy needs restructuring and a return to the drachma will enable this to happen in the normal way through a proper devaluation.

For the French and German banks that are the largest holders of Greek debt, their national governments, who currently prefer to give the money to Greece, should instead limit the damage to their own banks. If they fail to do this now they will only find that both Greece and the banks are brought down within the next three years. That would be a far more damaging event to European stability and growth.

British taxpayers are not immune from the financial pain of continuing to pour bad money after good. For all that David Cameron boasts Britain will not be part of the eurozone package, the truth is that Britain is about to double its contribution to the IMF to £20 billion per year.

The bulk of these funds will be lent to Greece as part of the bailout. British politicians should be saying now to the IMF that the loans must stop. Loans should only be made where there is confidence the money can be repaid. With Greece no such confidence can reasonably exist.

The Labour Party should not be following Cameron and the European consensus on this issue. It is a consensus of fear amongst politicians paralysed by a situation they are simply wishing will go away. It won’t. The effects of delay in recognising Greece’s default and in addressing it are potentially disastrous. Labour should say so clearly.

25 Responses to “Labour should break from the consensus and call for Greece to default”

  1. bill bold

    Labour should break from the consensus and call for Greece to default says Labour MP @BarryGardiner: //bit.ly/mOO2Re

  2. blogs of the world

    Labour needs to have an independent voice on Greece; the party's internationalism puts… //reduce.li/v9lh9a #break

  3. sunny hundal

    Completely right: "Labour should break from the consensus and call for Greece to default" says Labour MP //bit.ly/kY9Xzt

  4. alien from saturn

    Completely right: "Labour should break from the consensus and call for Greece to default" says Labour MP //bit.ly/kY9Xzt

  5. Anthony Zacharzewski

    Completely wrong on the economics. Greece leaving the € would cause a catastrophic devaluation sending inflation through the roof and crippling inward investment – impoverishing the country far more than the austerity measures. How much is a barrel of oil in new drachmas? How much is a machine tool for a factory? How much are the raw materials? Competitive devaluation doesn’t work – Greece has been doing it for decades and it was very weak economically even before the Euro was introduced. Is the idea that doubling the price of every barrel of oil will be offset by a few more tourists and a slight uptick in ouzo exports?

  6. Oliver Rivers

    .@sunny_hundal "Let's see what happens if we press big red button marked DO NOT PRESS" says irresponsible jerk //t.co/ouvesyJ

  7. Daniel Knowles

    So when did Dan Hannan start writing for Left Foot Forward? //t.co/eA4b1XN

  8. Peter Kenyon

    Completely right: "Labour should break from the consensus and call for Greece to default" says Labour MP //bit.ly/kY9Xzt

  9. The People's Pledge

    MP @BarryGardiner: Labour shd break from Govt consensus & call for #EU politicians to let Greece default & quit #euro //t.co/GQO2m9k

  10. William Cass

    good article on why #Labour should support a Greek default. //t.co/bfOUtZ0

  11. Graeme Archer

    So when did Dan Hannan start writing for Left Foot Forward? //t.co/eA4b1XN

  12. The People's Pledge

    Labour MP @BarryGardiner says Labour shd break from consensus & lead call for #EU to let Greece default & quit the #euro //t.co/GQO2m9k

  13. Dr Eoin Clarke

    Labour MP @BarryGardiner says Labour shd break from consensus & lead call for #EU to let Greece default & quit the #euro //t.co/GQO2m9k

  14. Nick dearden

    RT @leftfootfwd: Labour should break from the consensus and call for Greece to default //t.co/vB8HTK4

  15. Darren Hudson

    Labour MP @BarryGardiner says Labour shd break from consensus & lead call for #EU to let Greece default & quit the #euro //t.co/GQO2m9k

  16. JubileeDebtCampaign

    RT @leftfootfwd: Labour should break from the consensus and call for Greece to default //t.co/vB8HTK4

  17. paurina

    Labour MP @BarryGardiner says Labour shd break from consensus & lead call for #EU to let Greece default & quit the #euro //t.co/GQO2m9k

  18. William Cass

    good article on why #Labour should support a Greek default //t.co/bfOUtZ0 #Aylesbury #Aylesburylabour

  19. Selohesra

    The sad thing is that the crooks and charletons who pretended you could have single currency without full economic and political union will get away scott free. All those sceptics at the time such as UKIP and the Tory right seemed to have been telling the truth – shame no one in Greece was listening

  20. Michael Burke

    Labour should support a orderly default for Greece toprotect is citizens from the bankers.

    But it should not support exiting the Euro, which could be disastrous for the Greek economy.

    //socialisteconomicbulletin.blogspot.com/2011/06/greek-crisis.html

  21. Jess Delian

    @SteveBakerMP He said Labour shouldd break Govt/European consensus by calling on EU politicians 2 accept consequences //t.co/6CvoHau

  22. Paul Odtaa

    Did you see the smirk on Osborne’s face when he announced that he was going to support Ireland with billions of cash, but at 5% interest. Estimates vary, but the cash was costing the UK somewhere between 2 and 3%.

    The grown-up solution to the problems of Greece, Portugal, Ireland and Spain is simple a long term eurozone ‘Marshall Plan’. The cash to borrowed on the strength of the euro and then used for a long term solution to the problem.

    In effect France has already started this process with restructuring immediate Greek debt to a thirty year payback at a lower rate.

    If the leading eurozone leaders had been grown up they would have come up with something similar at the first sign of crisis and the speculators – those shorting Greece would have lost billions and then left the weaker European economies alone.

    Greece needs to change. Their middle classes do need to learn that you have to pay some income tax, that their government can’t just dole money on dodgy projects. But it needs time. Long loans with low interest, but with conditions would enable Greece to do this and to grow their economy.

  23. bob d

    The Labour party should break with the consensus and call for an orderly restructure of debt.

    But a devaluation to the drachma would be a revaluation of euro-denominated debt.

    Greece should never have been part of the euro – but its too late to re-wind history.

  24. Skepticat

    RT @leftfootfwd: Labour should break from the consensus and call for Greece to default //t.co/OVEs06d

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