Eurozone choices: Margaret Thatcher used to talk about TINA — “There Is No Alternative”. It should really have been TINRA: no realistic alternative. The UK prime minster believed the choice was between freer markets and something truly awful, a debilitating economic decline. The current thinking at the top of the euro zone follows a similar TINRA-logic.
Consider how the European Central Bank has reneged on a series of supposedly firm principles: it will not accept poor-quality collateral, will not buy government bonds and will stay out of politics. Meanwhile, euro zone governments may still claim they will never rescue a member state, but the new euro 440 billion European Financial Stability Facility suggests otherwise.
In each case, the backsliding seemed like the only realistic choice. The alternative was thought to be something similar to what happened when the U.S. authorities stood firm and let Lehman Brothers collapse. Even then, it took only a few days before Americans started singing the TINRA tune - there was no realistic alternative to saving American International Group.
From the euro zone’s point of view, a Greek sovereign default might be worse than Lehman. Almost none of the single currency’s members would be safe from the wrath of spurned investors.
Perhaps even worse, the carefully wrought European political construction could collapse in a wave of mutual recriminations. That prospect makes the alternative to each step down the slippery slope sound too horrendous to contemplate. But current policy could also be leading in dangerous directions.
The support for Greece may yet prove vain. The longer a Greek default is postponed, the more it will cost its friends in both money and prestige. Alternatively, the ECB’s laxness could eventually lead inflation to rise to an uncomfortably high level. It is even possible that German voters get so fed up with their government’s generosity that they force the country to leave the euro zone. But all those dangers lurk in the future. For now, TINRA is still the guiding principle. The ECB and some politicians may talk tough. But if markets demand even more generous support programmes, the authorities are likely to yield.