Bust: Greece, the Euro and the Sovereign Debt Crisis, by Matthew Lynn, Bloomberg Press, RRP£18.99, 288 pages
Voltaire once wrote that the Holy Roman Empire was neither holy, nor Roman, nor an empire. Likewise, today’s European sovereign debt crisis is not just about the euro area and its sovereign debt. It is much bigger in scale, afflicting the US, the UK and other countries. It involves reckless banking practices, incompetent regulation and the over-indebtedness of millions of ordinary people as well as governments. In Matthew Lynn’s words: “The sovereign debt crisis was a verdict – and a damning one – on three decades during which governments across most of the developed world had pushed up spending without paying any serious attention to whether their economies, and an often dwindling, over-taxed workforce, could pay for it all.”
Lynn’s book is fast-paced, entertaining and perceptive about the causes of the crisis. He explains how Greece cheated its way into the eurozone in 2001 by supplying the European Union authorities with data that understated the Greek budget deficit by an average of 2.1 percentage points in every year from 1997. Worse, the EU establishment chose to turn a blind eye to this. For much of the past decade, the eurozone’s exceptionally low interest rates made life one long party for affluent Greeks, who were already practising tax evasion on an epic scale. When tax inspectors checked the returns for one prosperous Athens suburb, they found only 324 people had admitted to owning swimming pools in an area where Google Maps revealed 16,974 bright blue rectangles.
Lynn describes the shock and anger of Germans asked by their government to contribute, as taxpayers, to a €110bn EU-International Monetary Fund emergency rescue of Greece. To put it mildly, this was not what Germans thought they were signing up for when they exchanged the deutschmark, the world’s most stable and successful currency for most of the post-1945 era, for the euro. Yet Germany can hardly abandon the euro: as time has passed, the shared currency has entrenched Germany’s economic leadership of the eurozone by boosting its exports and preventing its neighbours from engaging in competitive devaluations.
Moreover, there is the small matter of Germany’s sense of duty before history to serve as the pillar of a peaceful, democratic, united Europe. This sense of duty blends subtly with the pursuit of national self-interest. As a country that lies at the heart of Europe but is not big enough to dominate the continent, Germany can achieve lasting prosperity and security only when its neighbours do so too. Like many outsiders, Lynn falls into the trap of assuming that reunification in 1990 made Germany a “normal”, selfish country in the manner of France and the UK, when history, geography and economics suggest that Germany remains something of a special case.
But the book’s larger weakness is that it is too hastily written. It is shaky on historical detail and contains factual errors. It is over-reliant on instant news reports and on the analyses that investment banks and credit rating agencies distribute to clients. Finally, the book betrays an anti-euro prejudice. “The notion of a single European currency, like all bad ideas, has been around for a very long time,” he writes in the first chapter, before denouncing “centralising schemes cooked up in Paris and Brussels” and asserting that the aim of the euro’s creators was to establish “a fully centralised super-state”.
Lynn warns that unless Europe’s leaders redesign their monetary union, the euro “will turn the European Union into a dark, oppressive force”. But his basic prediction is that European nations will throw away hundreds of billions of euros in an attempt to save their creation in coming years, before realising that nothing will fix it. “And the euro will be dismantled far more quickly and smoothly than anyone would have imagined,” he says.
When he is not penning financial columns for Bloomberg News, the author writes military thrillers under the name Matt Lynn. The story of the euro is a bit of a thriller in itself but readers will need to be patient waiting for a more thoroughly researched and balanced account of the European debt crisis.
Tony Barber is the FT’s special projects writer