By Hugo Dixon
Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.
Greece is undergoing an astonishing financial rebound. Two years ago, the country looked like it was set for a messy default and exit from the euro. Now it is on the verge of returning to the bond market with the issue of 2 billion euros of five-year paper.
Greece’s reform job is not even half finished. The government hasn’t done enough to root out the vested interests that strangle the economy. Nor has it cracked down fully on tax evasion or pushed hard enough to privatise state-owned properties.
The austerity debate misses half the point. It is true that governments, especially in the euro zone, shouldn’t chase an austerity spiral ever downwards. But they can’t just sit on their hands. They must drive even harder for structural reforms.
The battle against Grexit – Greece’s exit from the euro – is far from won. Assume Athens is promised its next 44 billion euro tranche of bailout cash and some further debt relief when euro zone finance ministers reconvene on Nov. 26. Even then, the banks will still be hobbled, while another round of austerity is in the works and vested interests are rife.
Investors have been obsessed with the notion of “Grexit” – Greece’s exit from the euro. But “Brexit” – Britain’s exit from the European Union – is as likely if not more so. The country has never been at ease with its EU membership. It refused to join its predecessor, the European Economic Community, in 1957; it was then blocked twice from becoming a member by France’s Charles De Gaulle in 1960s; and shortly after it finally entered in 1973, it had a referendum on whether to stay.
Odysseus would recognise the dilemma faced by today’s Greeks as they must choose either the pain of sticking with the euro or the chaos of bringing back the drachma. The Homeric hero had to steer his ship between the six-headed sea monster, Scylla, and the whirlpool, Charybdis. Avoiding both was impossible. Odysseus chose the sea monster, each of whose heads gobbled up a member of his crew. He judged it was not as bad as having the whole ship sucked into the whirlpool.