Financial Times
June 23, 2011
If something is unsustainable it will not be sustained. But it still might be kept going for quite a long time. This was the story of Harold Wilson’s long but vain attempt to stave off the 1967 devaluation of sterling. It was the story of the attempt of successive US presidents to maintain the fixed official dollar price of gold. In the final few years it only applied to gold for official transactions, but even that was abandoned by the Nixon administration in 1971. Sometimes it works the other way round, as in the unsuccessful attempts of German governments to prevent the appreciation of the D-Mark in the 1960s. There are those who say this is happening again with the unrealistically low implicit German exchange rate against the euro. And for all I know Roman emperors tried to persuade their subjects that the denarius in their pockets had not been devalued.
A Greek debt default, however disguised, is a foregone conclusion. More interesting is the fate of the euro. On November 5 last year, I wrote that Greece should and would leave the euro, but most certainly could not give a date. Little has changed since then despite the increasing complexity of the financial packages being negotiated to save Greek membership. It is time to look at what the UK chancellor Denis Healey used to call the real economy. Greek unit labour costs have risen by 50 per cent since 2001. This compares with a eurozone average of about 25-30 per cent and a German cost increase of little more than 6 per cent. Even Portugal has a much lower increase than Greece of some 36 per cent.
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