The Government the Eurozone Deserves

ATHENS – Will Greece’s troubles destroy Europe’s currency union, or reveal how it should be saved? The recent controversial bailout deal – likened by some to the 1919 Versailles Treaty, with Greece in the role of Germany – offers the latest twist in the eurozone’s existential saga. The deal has caused a split in Syriza, Greece’s leftist governing party; opened a rift between Germany’s Chancellor Angela Merkel and her uncompromisingly tough finance minister, Wolfgang Schäuble; and spurred an effort by France to reassert itself within the Franco-German axis that has always been the “motor” of European integration.

Meanwhile, many of North America’s Keynesian economists, such as Nobel laureates Paul Krugman and Joseph Stiglitz, sympathize with Greece’s anti-austerity stance. Other economists, mainly in Europe, argue that Germany must assume a political role befitting its economic preeminence and must accept sovereignty-sharing (and burden-sharing) arrangements to ensure the monetary union’s cohesion and sustainability. Humiliating a small country and rendering it a virtual protectorate does not serve Europe’s long-term interest.

Yet this is what is at stake. Greece signed the deal after facing an explicit invitation from Schäuble to leave the eurozone – supposedly temporarily – and adopt a new currency. Germany’s stance marked the first open challenge by a leading European power to the notion that the monetary union is irrevocable. As the French, instinctively sympathetic to the anti-austerity argument and conscious of their increasingly junior role in the Franco-German partnership, were quick to notice, the German stance also signaled a potential shift from a “European Germany” to a “German Europe.”

It hardly helped that the negotiations between Greece and its creditors produced a growing mistrust in the competence and intentions of Syriza. Devious and erratic negotiating tactics, coupled with secret schemes to prepare – as part of a “Plan B” – for an exit from the euro, undermined the government’s trustworthiness, leading even Paul Krugman to admit: “I may have overestimated the competence of the Greek government.”