Days of reckoning, revisited

Talking of Greece, a funny thing happened to me on the way to the forum on the future of the euro zone. But that's another story.

I spent a lot of time in my pointlessly prolonged postgraduate days describing the economic policies of the late Andreas Papandreou, former prime minister of Greece, and father of the current premier. It was almost entirely a wasted effort on my part, leading nowhere in particular, except for an exhaustive and exhausting period of research.

As the world contemplates the economic catastrophe confronting the scion, namely George, of that iconic and still revered figure, it occurs to me that this time round my ruminations will at least serve the purpose of filling this space. What goes around comes around, though now in pocket-sized form.

Then, as now (and as ever), the economics were political, in fact tribal. In the 80s a socialist Greek administration spent like there was no tomorrow, and in the early 90s a government of national unity had to clean up the financial mess in a pronounced ‘catharsis'. Ironically, once the conservative opposition had applied a modicum of the necessary austerity and been kicked out by the voters for their temerity, it was Papandreou who pointed Greece towards eventual membership of the EU and the apparent disciplines of the exchange-rate mechanism and euro zone, sagely recognising that there was even more money to be spent that Greece didn't have, furnished by European taxpayers, delivered by a collective political class willing to bribe its way, with other people's money, towards their dream of a bureaucratic superstate.

Now we have the ultimate consequence of that combination of hubris and cynicism, and the euro is taking on more of the traits of the drachma it replaced, heading, at time of writing, symbolically south. And that's against another troubled Western currency, the US dollar, when compared with the benchmark, universal store of value that is gold.

So, what of that political, tribal economics now? Well, from this jaunty perspective it's simple enough.

The left, aka the Keynesians (very fashionable at the moment, you might have noticed), cannot abide the idea that the finances of a country's economy are in any way akin to household budgeting. That would imply having sooner or later to live within your means, which is terribly unsophisticated, don't you know, and much too reminiscent of the undoubtedly iconic Mrs Thatcher, her Victorian attitudes, her handbag, and her grocer's-shop background.

The right, aka monetarists, disagrees, but is vulnerable to the charge that sustaining jobs is always more important than sound money — which plays well politically.

There's a slight problem that eventually inflation itself kills employment, but Keynes famously observed that in the long run we are all dead, meaning that we shouldn't worry too much about that, but defer to the short-term fix, or a series of short-term fixes. Politicians, aided and abetted by determined intellectual snobbery, have been earnestly quoting him ever since.

Indeed I remember an economics lecturer once trying to tell us that it was OK to keep deceiving people, keeping their real wages down, and therefore employment up, by perennially ratcheting up inflation (so-called ‘money illusion'). As if they wouldn't notice (so-called ‘adaptive expectations'). I swear he was serious. Then came the comeuppance of ‘stagflation' (the worst of both worlds), which may be where the West is heading again.

I may even have mentioned this objection before, but, even frivolously, it may again be germane (not to mention somewhat German) now. The trouble is that this archaic approach is leading again to governments pedalling furiously a bicycle without their feet touching the ground, desperate not to come to a halt. But the news is: the wheels have come off anyway, and now Germany is in the (albeit self-administered) invidious position of paying economically for the wilfully errant politics of Europe, and the Hellenic Republic must be slavish to the austere terms of a massive bailout. Predictable enough, but breeding dangerous distrust and contempt among supposed partners. What is it the Greeks say: beware of Germans (or the IMF) bearing gifts? Something like that. On the streets of Athens there have certainly been descendants of the Trojans getting hoarse.

And the relevance to the Gulf? Twofold, I would say.

One is that this European volcanic economic eruption could make much of the Western hemisphere an economic no-fly zone for a while. But, by now, this region is sensibly looking East anyway. The other is that the Maastricht criteria for monetary union (a) were faulty, because monetary union itself isn't really going to work without fiscal and political union, as intended by its original architects, and (b) are even less use when they are ignored for reasons of political expediency.

Thus, you have to wonder, should the GCC states really want monetary union along those lines, given the implications? And, if still so, shouldn't they use a different approach?

In that regard, a mere suggestion. Why not simply redenominate the region's currencies so that they remain in existence as national instruments and symbols, but, already being nearly fixed, carry equivalent values? Three of them (Saudi Arabia, UAE and Qatar) are almost the same anyway, and the other three (Kuwait — at a stretch, Oman and Bahrain) are kind of equal too, at roughly ten times the others' value. You might even have noticed that fact in the pricing of certain magazines, for instance, where the discrepancies are rounded away.

So convert them all to one-to-one, achieving practical inter-changeability. The critical attribute of ultimate sovereignty, as has been so obviously and grievously lost in Europe, would thereby be preserved, while the central merits of a single currency, namely stability and convenience, would be won.

Of course, that proposition is doubtless (though barely) academic. Discuss.