Representatives from Greece’s creditors on Monday began preliminary talks with Greek officials in Athens on the terms of the country’s third bailout deal. Earlier this month the European Union stared into the abyss as Greece’s exit from the eurozone, also known as Grexit, looked imminent. It would have been an egregious setback in forging a united Europe. While the currency union has averted the worst-case scenario, the latest outcome is not a lasting resolution for Greece or the EU.
Facing potential bankruptcy, Greece buckled to Germany’s dictates after protracted negotiations with its creditors and ultimately accepted destructive austerity measures. The bailout deal kicks the can down the road three or four months, but nothing has been solved, and Greece’s plight will likely only worsen.
The bright spot: the debt crisis, the worst in EU’s history, has laid bare all of Europe’s most glaring deficiencies — the democracy deficit, the north-south divide, the partial economic and political unions and Germany’s increasing dominance. If the EU hopes to move forward as its postwar founders envisioned and its contemporary advocates still desire, the Greece crisis is a loud, anguished call to address the union’s long-standing flaws. If not, the EU risks stalling and limping on with acute crises such as Greece, Ukraine and the flow of refugees across the Mediterranean.
The writing on the wall is unmistakable: The eurozone cannot continue to fudge its identity as a monetary union among countries with partially integrated economies and loosely coordinated financial sectors. To be clear, American skeptics such as the Nobel laureate economist Paul Krugman are wrong to suggest that the monetary union among states as diverse as Greece, Portugal, Germany and Finland was doomed from the start. But in order for the eurozone to work, there has to be a genuine political union in the form of a European republic and a spirit of solidarity that has been wholly absent in recent years.
There is no agreement on what exactly a new EU republic should look like. Ideally, it would coordinate EU-wide economic and budgetary policies and tightly integrate financial sectors, including a central bank capable of making transfers within the eurozone independently of the large states.
Under such an all-EU government, Europeans would elect an EU administration with a finance minister to oversee national budgets and monitor debt and intervene if and when necessary. This structure would render crises such as Greece’s unthinkable and, in the worst cases, provide remedies. But when national leaders call the shots, it is only logical that they will act in their self-interest rather than the interest of the EU as a whole. After all, they were elected to serve their own citizenry, not the entire EU demos.
A European res publica remains controversial, in part because it requires states to hand over yet more sovereignty to a central authority. But that is exactly the kind of political union that EU’s visionaries tried to forge through the common currency. This, though, has failed dramatically, not least because it put the cart before the horse. EU member states must now decide what kind of political union they want and how to reform the eurozone. There are opponents and proponents of a European republic in many countries. On July 19, French President François Hollande called for the creation of a “stronger euro government” — with an integrated all-eurozone parliament, budget and economic policy — led by “a vanguard of countries.” While this is an encouraging development, the British still want a much more loosely organized union. It is not going to be easy, but at the very least, the discussion must begin.
The battle over Greece has only complicated this process. Germany has been accused of framing the Greece crisis in nationalist terms, forcing Greece to the wall. German Chancellor Angela Merkel has insisted on more austerity, more scrimping, higher taxes and selling off Greece’s assets to generate income.
A Europe of more equal wealth is safer, more stable and more peaceful. This is why pan-European politicians such as former German Chancellor Helmut Kohl and many, many others tried to rectify economic inequalities within the EU for decades. From 1970s to 1990s, the richer northern EU countries sent massive funding to the poorer ones. There were no uproars or jingoist headlines at the time because leaders such as Kohl explained to their citizens why the investment was necessary, farsighted and even good for the benefactors.
By contrast, Merkel has framed the debate in negative terms, making it difficult for Germany to help Greece. Unless Merkel reverses her hard-line stances, there will be a Grexit. The path that Greece is being forced to follow is a dead end and will not result in the growth Greece needs to meet its debts. It will become a self-fulfilling prophecy for Merkel by proving the Greeks’ incompetence.
Of course, Greece has to institute reforms, in particular to its taxation system, with measures that would finally make wealthy Greeks step up to the till. Prime Minister Alexis Tsipras and his government have not yet undertaken this and other structural reforms as promised on the campaign trail. But it makes no sense to hike sales taxes for the entire population and further consolidate the budget to bring about growth. This raises the question, where should the investment necessary for short-term growth come from?
This was the essence of a recently leaked report by the International Monetary Fund (IMF), which questioned Greece’s ability to meet the stringent, short-term budget targets that the creditors are insisting on. It argues that Athens should receive a 30-year grace period before it has to start paying off its debts. “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date — and what has been proposed by the ESM,” the report said. (The ESM is the European Stability Mechanism bailout fund, which will bankroll the Greek bailout.) The IMF has said that it will not take part in the proposed third Greek bailout unless there is a “complete” program, including a restructuring of the Greek debt.
The EU’s latest bailout deal and proposed reforms are more of the same tonic that had been demanded — and largely applied — in recent past. Greece slashed its state budget by 30 percent since the first bailout. The result: Its GDP dropped by 25 percent. Why should more budget cuts lead to another result?
There is an ignominious precedent to implementing austerity policies, tightening credit and reversing wage increases during depression. This is what the Weimar Republic’s Chancellor Heinrich Brüning did in 1930, which triggered an economic slump and prompted him to declare rule by decree. The result three years later was Chancellor Adolf Hitler.
There’s no need to overstate the case or become alarmist. Extreme-right-wing parties, which are vehemently anti-EU, and leftist Euroskeptic parties are on the rise across the EU — and in no country more fiercely than in Greece. No EU parliament has ever had more illiberal populists than the current one. As seen in Finland, far-right parties are making their way into national governments, typically as the junior coalition partners of conservative parties. It is no accident then that Finland has been Germany’s most loyal ally in reading the riot act to the Greeks and threatening a Grexit. Finland’s right populist party, True Finns, wants the EU to flop.
So why have the Germans been so ruthless?
One answer is that Berlin sees Syriza-style leftism as a threat to all of Southern Europe and maybe beyond. Germany wants to break the back of the dissenters once and for all by crushing the first to challenge the rules of the austerity regime. Spain and Portugal have similar parties, and a leftist party governs Italy. Syriza’s victory would have emboldened those parties.
The Germans believe that they won this round of negotiations, but the price is high, and its terms are so unpopular that more EU burghers might take a closer look at the policies being carried out in their name and consider alternative arguments.
The conditions of the current bailout are such that Greece may become a proto-protectorate of the EU without sovereign economic policy decision-making. This bodes ill when one looks at the track records of the EU’s other protectorates: Kosovo and Bosnia and Herzegovina. Since those former conflict zones came under the EU’s wing more than 15 years ago, they have become corrupt economic basket cases, nowhere closer to fending for themselves than shortly after their wars ended. There’s nothing to suggest that Greece will fare any better.