Make up or break up dither ‘killing EU’

Comparing the EU with a push-me-pull-you beast, political risk consultant Dr. John Hulsman predicts that the union should either go for further substantial integration and unification, or cease to exist as a geopolitical entity.

­RT: The global economy still hasn't recovered from the financial crisis of 2008. Would the potential exit of Greece from the eurozone have the same effect on the global economy as the fall of Lehman Brothers did?

John Hulsman: How could that be worse than the Lehman thing? It depends on how it is supposed to happen.

The problem is that a disorderly exit would mean that the bottom markets turn immediately upon Portugal and more importantly – Italy and Spain. If it gets Italy and Spain – the game is over.

We could have an existential moment in Europe where Europeans have to decide how much unity they want, how much integration they want, how much sovereignty they are prepared to give up to save the euro. Maybe the euro was not such a good idea in the first place.

RT: Which is the second weakest economy and can we witness some sort of domino effect?

JH: This could be contagious indeed. What we’ve done is stop believing that there is one rate in Europe. What happened? Those weaker, less competitive sovereign countries had a party for ten years because everybody said “It’s a unified currency so the bottom rate in Germany is going to be pretty much the same as the bottom rate in Athens”. That theory has been destroyed with what is happening in Greece at the moment.

If we look individually at the parts of Europe, we see a number of weak economies lumping along. Portugal is in a similar spiral, Ireland is different and I think would make it. But really even France could be considered for this situation.

If you look at individual policies, the markets are going to have very little tolerance for those countries. The problem is that these countries want Germany’s standards of living and German currency without German productivity.

RT: The British PM David Cameron has warned the eurozone that it must make up or break up. How do you feel about this philosophy?

JH: I totally agree with the Prime Minister because the problem is they have set up a currency without having a country, it is like building a house from the attic down.


Germans are grumbling that Greeks retire at 52, Greeks are grumbling about Germans, having diktats forced upon them – that is because those people are not in the same boat rowing in the same direction. They created this push-me-pull-you two-headed monster. They have either to move forward to greater integration to save the euro, or they have got to pull back and have less integration and go to a more national model. That is the theory that is falling apart here.

RT: There was never a plan for countries to leave the eurozone. When it was created it was assumed that countries would keep joining the EU, nobody would ever leave the club.

JH: This is it… If they re-float the drachma it would lose between half and 80 per cent of its value immediately. There goes everyone’s pension and life savings. And if they become more competitive and conduct a market reform in 10 to 15 years, all might be well. That is the good scenario.

The bad scenario is that they don’t do these reforms and they default. The Europeans refuse to back them up and very soon Greece leaves not just the eurozone but perhaps the EU as well – but on very angry terms.

There is fatigue on both sides. The Germans are sick of paying for the Greek system that just doesn’t work. And they don’t want to pay for the Greeks to retire at 52 when they [the Germans] retire at 67.

Greeks are smart enough to pull their money out of the euro because they feel if they leave their money in the banks – there could be drachma over a weekend. At a certain point that becomes a self-fulfilling prophecy.

RT: There's still a very high percentage (80 per cent) of Greeks that want to stay in the euro. Can Greece remain in the EU without adhering to austerity plans?

JH: No, it’s a fairytale. There are a lot of fairytales wandering around. The German fairytale is that everyone can do austerity without growth forever. The Germans talk aloud that politics matter, and the Greeks talk aloud that economics matter. The problem with the system is both of them are wrong. There is no growth fairy. You cannot just say “I want to grow!”  Who wouldn’t? The problem is that you need to do unpopular reforms. On the other hand who would want to do austerity forever?

RT:The Greeks have taken around 1 bln euro out of their bank accounts over the past ten days following the elections. Could we see similar situations in other countries like Spain or Italy?

JH: Spain and Italy are collectively too big to save. If that happens – game over. Germans could be leaving, saying “We are just not going to do this anymore!”

The situation is a house of cards that could very easily come down because we are dealing with human beings, and as we have seen human beings make mistakes.

European leaders have no choice. Either they will manage the process, or the process will manage them.