The Greek election on Sunday may result in another parliamentary deadlock, like the previous one in May – and in a deadlock between Greece and the rest of the euro zone. If so, there is a real danger of policy paralysis on the linked questions of the granting of credit to the Greek government and Greece’s use of the euro.
The G20 meeting on Monday and Tuesday in Mexico will be in no position to resolve the continuing crisis, but the three euro-zone members in the G20 – Germany, France and Italy – should at least be able to present a good case that they will not allow one small nation’s insolvency to turn into a social and humanitarian disaster – not to mention a renewed international recession.
Negotiations between the Greek government and the rest of euro zone may break down, but the Greek people should not be banished from the money economy – not just from the euro – and propelled back into the Neolithic Age. It will not be a victory for any austerity program if Greeks cannot make use of cash machines, if retirees no longer receive their pension payments, if those who have not already withdrawn their bank deposits have no access to them – in short, if Greek banks as a group shut their doors – at least until Greece starts printing some money of its own.
Greece does have bank-deposit insurance, as the European Union requires. The trick is that the essentially insolvent Greek government is the insurer. This is a salient example of why the euro-zone countries – and perhaps the European Union as a whole – will need to accept some measure of joint responsibility for deposit insurance.
One can forgive Angela Merkel and many other Germans for imagining that they, and they alone, are being asked to guarantee the bank deposits not only of Greece, but also of Spain and Italy: at least €2-trillion. Eventually, some shared deposit-insurance plan – supported by premiums or collateral from all member countries – will be required. In the immediate crisis, however, the citizens of Greece should be assured that they will be assisted in getting access to their own cash, if need be. In or out of the euro zone, they will still be in the European Union; Europe cannot simply abandon them.