Judy Asks: Is Greece Killing Europe?

No, I don’t think Greece is killing Europe. But the Greek saga does serve as a test. Many European leaders are aware that the crisis has the potential to wreck Europe. Although several of them—not least the German chancellor—are under pressure to let Greece leave the eurozone, I believe they won’t let it happen. The contagion effect and geopolitical fallout of a Greek exit would be severe and would undermine the EU itself.

The geopolitical fallout of #Grexit would undermine the EU.

 

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Instead, leaders will keep trying to find some kind of compromise. Sure, a compromise seems elusive now. There is a lack of trust among member states. But finding compromises, even ugly ones, is what the European Union is all about.

What is being witnessed in Greece is a clash between globalization and democracy. Greece lifted its economic and financial decisionmaking to an international level: the markets, Brussels, and the International Monetary Fund co-decide aspects of Greek economic policy. No one forced Greece into this; its parliament voted for eurozone membership.

For years, this arrangement benefited Greece. Now, the Greek economy has collapsed, revealing deep flaws in both domestic and eurozone governance. Greece and its creditors have to work out a new balance, otherwise the country will be shut out of international trade and finance. Then similar debates in Spain and other countries could get out of hand, too.

What has struck me during recent months is the enormous sympathy that ordinary Europeans have for the demands of Greece’s governing Syriza party. Right or wrong, if there is no Greek deal, political battles elsewhere in Europe will escalate.

“Is Europe killing Europe?” may be a better way of putting the question. Unlike all other economically important parts of the world, the EU is only now on the verge of recovering its GDP level of eight years ago, while generating massive disaffection among its members.

Greece is an extreme manifestation of this broader reality. If Greece is forced out of the eurozone in a context of economic chaos, it is unlikely that the country will remain a member in good standing of the European Union or even of NATO.

The mere possibility of #Grexit will have big geopolitical consequences.

 

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As with the potential British exit from the EU, the mere possibility of a Greek eurozone departure will have big geopolitical consequences. Until now, European integration and the Atlantic alliance have been premised on irreversibility. If that premise is proved false, then Europe’s whole post–Cold War order will be threatened, with Moscow’s risk taking likely to increase. The EU was built to ensure peace and prosperity; both now hang in the balance.

Such are the stakes of Grexit. Germany and other reluctant eurozone members have little time to decide that it is worth heeding the International Monetary Fund’s recommendations on debt rescheduling to avoid such an outcome. Let us all beware of history’s verdict.

Greece is doing serious damage to Europe—or at least to the hopes of coherent European integration based on a single market, a single currency, and a single economic policy.

A side effect is the boost for British Euroskeptics who are jeering at the Greek disaster as proof positive that the eurozone and even the whole EU are so poorly designed and managed that the more distance Britain keeps from the union, the better.

Former Greek finance minister Yanis Varoufakis and German Finance Minister Wolfgang Schäuble could not have been invented by the Euroskeptic UK Independence Party—so perfectly have they played out their roles as grave diggers of the EU and evidence of why the UK should steer clear.

Berlin has been exposed as wanting to call the tune but not pay the piper.

 

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Both sides are right. The Greek debt is unsustainable and should be written off, but the leaders of Europe since 2010—former European Commission president José Manuel Barroso, his successor Jean-Claude Juncker, German Chancellor Angela Merkel, European Council President Donald Tusk, and others—have lacked the political imagination needed to control events rather than be controlled by them.

The refusal of Greece under former and current governments to undertake any basic reforms has given the lie to the idea of the EU as an integrative force that injects better performance into less advanced member states. Berlin has been exposed as wanting to call the tune but not pay the piper. The EU is badly hurt, but perhaps Greece will finally oblige EU leaders to practice leadership not followership.

Greece has openly challenged the crisis management of the past few years—a mechanism wrapped in a tight, rules-based approach and centered on a notion of partial and temporary transfers of sovereignty from debtor to creditor countries. By elevating rules above politics, the EU had hoped to eliminate or at least mitigate the political blame game between member countries. The opposite has happened. In that respect, Greece’s challenge has provided some clarity.

#Greece has openly challenged EU crisis management.

 

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Greece can destroy Europe—or the Europe we know—but only if it exits the eurozone and if the failure of recent years becomes blatantly clear to everybody. Let’s not mince words: once the monetary union ceases to be a community of destiny, every political and economic challenge can become existential. The European Central Bank’s promise to do whatever it takes to preserve the common currency will ring hollow and will be tested.

Such a negative scenario could be avoided only if member countries agreed to bold further transfers of sovereignty from all eurozone nations to centralized, democratically elected European institutions. Since national governments currently have no appetite to advance on that path, I fear that they will have to do whatever it takes to keep Greece in the eurozone.

The Greek crisis puts the spotlight on the nature of governance in the EU. The union remains a club that relies on the constructive engagement of its member states. The EU has no mechanisms to deal with the hostile, guerrilla-like obstructionism that Greece’s Syriza-led government demonstrates.

Greek Prime Minister Alexis Tsipras is not willing to play ball. He seems to assume that he has the equivalent of an economic and geopolitical nuclear weapon in his hands: the fact that other eurozone countries, especially Germany, are driven largely by the fear that Grexit might destabilize the eurozone and give the Kremlin an opening on Europe’s southeastern flank. The day after the July 5 referendum on whether to accept the terms of a new bailout package, Tsipras called Russian President Vladimir Putin to bring the message home.

The #eurozone must decide between two very bad options.

 

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What Syriza apparently wants is to get rid of conditionality: to receive debt relief and fresh money without tackling the deeper, structural reasons for the crisis—in other words, without undertaking fundamental reform of Greece’s weak state institutions. But that is a no-go for most other eurozone countries. Quite a number of those countries successfully underwent the austerity cure and have returned to economic growth, and some of them are still poorer than Greece.

Now, the eurozone must decide between two very bad options: keeping Greece in, with the risk of destabilizing the club from the inside; and voting for Grexit, with the risk of destabilization from the outside. The eurozone’s leverage in both cases is low.

No, Greece is not killing Europe. But all Europeans together could end up killing the European project—the attempt to create a zone of peace, prosperity, and freedom based on a promise of mutual solidarity—if they do not find a way out of the Greek crisis.

All Europeans together could end up killing the European project.

 

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A solution is imaginable only if all parties make excruciatingly painful sacrifices. Conversely, a deal is not going to happen if the parties keep insisting, as they do now, that the other side has to take all the pain. The Greeks want dignity, stability, and prosperity, and they want it in Europe. Europeans (well, most Europeans) want Greece to stay in the eurozone and in the European Union.

That’s simply not going to happen without serious reform at home and some measure of debt forgiveness and growth programs. Granted, given the anger, erosion of trust, and just plain nastiness all around, this seems almost impossible.

But consider the alternative. Greece would almost certainly drop out of the eurozone, with terrible costs to its citizens, and would face an uncertain future. This would boost populist, extremist, and separatist movements and parties across Europe. It would increase the risk of a British exit from the EU and possibly other exits. It would be the end of any further European integration and would create an inward-looking Europe that seeks to fortify itself against the rest of the world—rather than engage with it. The EU would become an object of global power play, rather than an actor.

If Europeans don’t want any of that, they must step back from the brink now.

Greece and Europe are arguably in a mutual death lock. For its part, the EU demands adherence to the fiscal and monetary orthodoxies that underpin the euro. According to the Greek government, the Greek people, and many economists, that requirement is imposing unbearable costs—to no great effect—on Greek society.

#Greece and Europe are arguably in a mutual death lock.

 

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At the same time, Greek demands for unilateral solidarity and respect for the country’s sovereign democratic rights have destabilized the monetary core of the union. The eurozone is threatened with a massive and potentially existential political and monetary shock.

From this zero-sum equation, only two non–mutually destructive paths appear visible: either a managed and agreed Greek exit from the eurozone, or terms for a new bailout that addresses the core issue of debt sustainability. A disorderly Grexit would be disastrous both for the union and for Greece.

The choices available are unattractive for both sides. The greatest mutual gain is to be found in a serious, substantial, and definitive bailout program. Delivery of such a program rests with the Greek government. If Athens is unable or unwilling to pursue this goal, then only a Grexit will avoid a mutually destructive spiral.