John Redwood on the ECB, the triumph of democracy and key questions for Euro politicians

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The latest entries in John Redwood’s Diary discusses numerous issues currently facing Europe including the need for the ECB to say when and how it will help Greek Banks.

It is unacceptable for one of the leading Central banks of the world to fail to tell people on what basis it will support Greek banks and get them open for business again.
It is the job of the ECB to supply Euros to Greek banks when people want to withdraw their money. It is their duty to allow external settlement of accounts from Greece to the rest of the zone and beyond. Greek business with money needs to pay foreign suppliers. If Greek banks are solvent as the ECB has always said they are, they must supply the cash. If a bank in the zone becomes insolvent, then the ECB must trigger its recapitalisation. Playing politics with the livelihoods of Greeks and undermining Greek businesses by failing to allow transactions is doing damage to the Eurozone as a whole as well as to Greece itself.

Click here to read this piece in John Redwood’s Diary.

John Redwood also explains how democracy has beaten the Euro, for now.

I hold this truth to be self evident. People are happier if they are self governing.
The choice for the Greek people was a simple one. Did they wish to sign up to another period of the same policies that delivered a cut of one quarter in their incomes and mass unemployment, especially for their young people, or did they wish to try something different?
We now know the Greeks by a large margin voted for their democracy. They voted for change. They voted against the policies a German led Europe has imposed on them. And yes, it was a vote against German influence, as the explicit posters of the campaign with pictures of the German Finance Minister and unflattering words made clear.
I think all should respect the strong view of the Greek people. If the Euro area wishes to keep Greece in the Euro it has to move swiftly to help. If it wants them out, it needs to tell us urgently how it can be done sensibly with least damage.
Those who still have something to lose, particularly those with jobs from the EU, may have voted for more of the same. Those who have already lost probably voted for change. Those who are optimists probably voted for something different, whilst some pessimists accepted the German led EU’s strictures. Those who believe in Greek democracy voted for their government and those who believe in the EU scheme voted for the deal which may be back on offer.
To some in Greece it was a vote for the dignity to disagree with The Euro bosses. For others it was a vote to conform, to show they are trying to be good Europeans.
This is a seminal moment for the whole EU/Euro project. As Greece votes No the EU has to rethink its approach to national democracies. Other nations will want and need the ability to change EU/Euro policies they do not like.
It is not a pleasant sight watching the group of Euro area Ministers and their Central bank gradually throttling the Greek economy by refusing it the cash it needs through the commercial banks. If these are solvent banks they should be sent the money they need. If a bank is no longer solvent it should be recapitalised under the agreed procedure. Any advanced economy needs a fully operational banking system. It is a prime duty of sovereign government to maintain a freely traded currency that allows all legal transactions.Why doesn’t the Eurozone do that?
If today the European Central Bank does not re-open the facilities for the Greek banks we will witness the extraordinary sight of the European Central Bank refusing to help damaged banks within its own zone, and refusing to behave as normal central banks as lender of last resort and provider of liquidity to commercial banks under its supervision. This may force the Greek state to issue its own money to pay bills and to re-open the banks.If the Euro area refuses early and urgent talks with Greece then it makes crisis more likely. It should also lead other members to ask what kind of a common currency is it, if people with deposits in banks in the zone cannot get their own money out, and if businesses in Greece with money are not able to pay their bills with other parts of the zone.

Click here to read this piece in John Redwood’s Diary.

Finally John Redwood asks if the Euro politicians are going to throw Greece out as they said they would.

Before the Greek referendum the consistent message from the European Commission, the Euro group of ministers, and from the large Euro country governments was the same. The referendum was not about whether Greece should accept the last terms from the Euro group and EU or whether it should reject them. The referendum they said, was about whether Greece wanted to stay in the Euro or not.
Germany’s Vice Chancellor said on the record that a No vote was a vote “against remaining in the Euro”. The President of France said the vote was about “whether the Greeks want to stay in the Eurozone.” Signor Renzi of Italy said the vote was about the “Euro versus the drachma”. As they knew the Greek government and people wanted to stay in the Euro come what may and were not about to ask to leave, they were clearly saying they would drive Greece out of the currency if she voted No.
So how are they going to bring this about? Will they do it by a sensible agreement, keeping Greece’s banks going in the meantime whilst Greece sets up her own currency arrangements? Or are they going to do it the nasty way, by continuing to refuse the Greek banks access to more cash, in an effort to bring the Greek banks down in a hurry and force the pace of establishing a new Greek currency?
Or were these words all foolish hot air? Will the Euro area now meekly pay up, send Greece the money it needs to keep going, and sit down again at the negotiating table to try to come up with another compromise which is better for Greece than the last one on offer? If they do that, will they this time try and find a lasting solution, instead of more extend and pretend credit that does not tackle the underlying weakness of the Greek economy?
Which ever way, the credibility of the Euro bosses is gravely compromised by this dreadful situation they have helped create. If they decide to co-operate, lend to Greek banks enough money, help the Greek state meet its debts, and discuss changes of economic policy to try to get the Greek economy growing again, they will have to eat all the words they have spoken in haste in the last week. They send exactly the signal they wished to avoid, that if a country gets into a big enough mess they will be bailed out by the taxpayers of other states of the zone. If they continue to dig in and refuse to support Greek banks they may well drive Greece out of the Euro, after doing yet more damaged to the Greek economy. It is time they rose to their responsibilities. It is time they understood how democracy works. It is time they realised they and the IMF have lent too much already on the wrong terms, and have now to find a way out for themselves and for Greece.

Click here to read this piece in John Redwood’s Diary.

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