AS part of the European Union, Gibraltar takes a keen interest in developments in the eurozone – the group of 19 member states that adopted the euro to replace their national currencies.
Our economic prosperity may be closely aligned to the UK economy, but we cannot ignore geography. We have intimate ties with Spain and many other EU countries.
In recent months, EU policymakers have had to look again at the situation in Greece. Difficult negotiations with the country’s creditors led to yet another bailout earlier in the summer. And, although unpopular, electors ratified the deal by returning Syriza’s Alexis Tsipras to power in last month’s general election.
This led me to consider what effect Greece’s economic health has on the rest of the eurozone and even those other countries, including the UK, that chose not to join the single currency bloc. Does the following summary sound about right?
“Greece’s is a tiny economy compared to the giant financial juggernauts within the eurozone, especially Germany. Nevertheless, ‘rules is rules’, and the Greeks, as members of this rather oddly composed club, are not supposed to be bailed out by the rest. Nor are they allowed to leave the euro. That fact results in potential damage to the euro itself. The single currency’s detractors have been talking up the possibility that a current member may be forced to leave the monetary union and revert to their previous ‘legacy’ currency. Worse still, the most pessimistic commentators talk about the day that the whole project will collapse and the euro itself will be consigned to history.”
Yes, I penned these words – but not recently. They appeared as part of an article in the Olive Press in April 2010. This demonstrates all too clearly the difficulties Greece faces, and that recovery is a long way off.
When faced with the numbers, Greece’s economic woes are clear to see.
Deflation (where prices are falling) has set in and is running at -1.5% p.a. The unemployment rate remains one of the highest in Europe, at 25%. To be fair, GDP is expected to grow this year but this comes after several years’ sharp decline. The economy contracted by almost 25% in the five years from 2009, before registering a modest rise in 2014.
After a series of nail-biting summit meetings, where brinksmanship appeared to be the name of the game, Greece finally managed this summer to agree yet another bailout from its creditors. The risk remains that some type of debt write-off will still prove necessary.
But why is this situation of such importance to those of us living, as we do, at the other end of the Mediterranean?
It matters to us because the euro has become a major, credible, international reserve currency. Moreover, there are clear signs across the eurozone of a recovery over the next couple of years. This could be blown wildly off-course if the Greek situation again becomes critical. Further economic instability could have a serious impact on the forthcoming UK referendum on Britain’s continued EU membership, which is so important for Gibraltar.
I may have started writing about these issues five years ago, but we are not out of the woods yet.
Watch this space.