Built to foster friendship, the euro is manufacturing misery instead
UNRAVELLING the tangled logic of Greece’s bail-out talks, Charlemagne has learned, is a little like trying to explain the rules of cricket to an American. How to make sense of a process in which Greek voters loudly spurn a euro-zone bail-out offer in a referendum, only to watch Alexis Tsipras, their prime minister, immediately seek a worse deal that is flatly rejected by the euro zone, which in turn presses a yet more stringent proposal to which Mr Tsipras humbly assents? Better, perhaps, not to try.
After six months of this nonsense, little wonder everyone is depressed. The immediate danger of Grexit has at least been averted, after Mr Tsipras and his fellow euro-zone heads of government pulled a brutal all-nighter in Brussels this week. But it comes at the price of a vast taxpayer-funded bail-out for Greece, worth up to €86 billion ($94 billion) over three years, and a humiliating capitulation by Mr Tsipras. Greece’s economy is in tatters, its creditors are fuming and Europe’s institutions are in despair. Much to Britain’s disgust even non-euro countries have been sucked into the nightmare: a bridge loan designed to keep Greece afloat while the bail-out talks proceed looks set to tap a fund to which all EU countries have contributed.
But wasn’t this week’s agreement a triumph for the shock troops of austerity? Hardly. Finland’s coalition, formed only two months ago, tottered at the prospect of funding a third Greek bail-out. The Dutch prime minister, Mark Rutte, has admitted that it would violate an election pledge he made in 2012. One euro-zone diplomat says that 99% of her compatriots would say “no” to the bail-out if offered a Greece-style referendum. Even Angela Merkel, Germany’s chancellor and Mr Tsipras’s chief tormentor, is damaged. The deal, crafted largely by Mrs Merkel, Mr Tsipras and François Hollande, France’s president, has exposed the German chancellor to competing charges: of cruelty abroad and of leniency at home, notably among Germany’s increasingly irritable parliamentarians, who must vote twice on the Greek package.
Europe’s single currency, designed to foster unity and ease trade between its members, has thus become a ruthless generator of misery for almost all of them. That is why hardly anyone has a good word to say about the new agreement. In private, officials acknowledge that the best to be said for it is that it kept Greece inside the euro. Some would not go even that far. On July 14th, one day after the euro summit, Wolfgang Schäuble, Germany’s bristly finance chief, declared that many of his colleagues in Berlin thought Greece would be better off leaving the euro than submitting to its demands. (He did not need to add that he shares that belief.) That evening Mr Tsipras admitted that the deal he had signed was terrible for Greece, but said that he was left with no choice if he wanted to avoid a return to the drachma. This gives the lie to the second sentence of the agreement, which states that “ownership by the Greek authorities is key”.
Several more fantasies emerge over the course of its seven pages. In order merely to earn the right to begin bail-out talks, the Greek government, which took office promising to end austerity and restore the nation’s battered dignity, must implement an epic list of reforms, from an overhaul of its civil-justice code to the rules governing its bakeries. Some, like a “depoliticisation” of the public administration, have eluded every government since Greece won freedom from the Ottomans in 1832. As the IMF pointed out this week, Greece’s creditors assume it can catapult itself from the lowest to among the highest productivity-growth and labour-force-participation rates in the euro zone.
That Mr Tsipras has been obliged to submit so cravenly is largely his own fault. Since taking office his preening government has vaporised the bonds of trust on which a currency union without a central authority must rely. But Europe’s hopes for bailed-out Greece now rest in a prime minister who has built his career opposing its bail-out philosophy. If Mr Tsipras does secure his rescue package, its regular reviews will be tortuous affairs. No one in a position of authority, it seems, has any better ideas.
The frustration with Greece is at its most intense in Mr Schäuble’s finance ministry, which last weekend floated the idea of a temporary Grexit. The proposal, which made its way into a draft euro-zone finance ministers’ document, was quickly scotched at the leaders’ euro summit; because a deal was struck, say officials, the doomsday option was not needed. But the foreign tutelage enshrined in the published document hardly represents a shining vision for Greece’s future. This newspaper has always opposed a Greek departure from the euro because of the economic shock it would bring and the political chaos that could follow. But faced with a programme that infantilises Greek citizens, endlessly saps its creditors’ energies and offers little hope of improvement, it is easy to see why some are tempted by the alternative.
Give Greece a chance
Can anything be salvaged from the wreckage? Perhaps. The boost to confidence that should follow the removal of the Grexit risk might counter the recessionary impact of the agreement’s austerity. Mr Tsipras might use his domestic authority constructively, starting by rebuilding his relations with the euro zone and attacking vested interests at home. As for his fellow leaders, having yanked Greece back from the abyss at great cost, they will be keen to make the deal work. They could offer Greece a slightly easier fiscal path than under previous agreements. Following the entreaties of the IMF, they might even make good on their vague pledges of debt relief, though that will be a hard sell.
Yet Charlemagne confesses to pessimism. Interviewed after he signed the deal, Mr Tsipras spoke darkly of an ideological “clash” within Europe that “will become more obvious over time”. Other ministers in his government have been freer with their military metaphors. The euro zone’s war with Greece has been traumatic enough. The peace could be harder still.