Europe’s Greek Failure

BRUSSELS – Narratives matter, especially when they are intertwined with hard interests. As Greece and its creditors court catastrophe, we are getting a clear picture of how conflicting narratives can lead to a lose-lose result.

The facts are indisputable. In early 2010, when the Greek government could no longer finance itself, it turned to its European partners and the International Monetary Fund for financial support. And they delivered: not only did other eurozone countries issue loans to Greece, but the IMF provided its largest-ever loan to the country. Later, Greece received even more support through the eurozone’s bailout funds. The result was hundreds of billions of euros worth of assistance.

But, as time progressed, Greece and its creditors came to view these facts very differently. As Greece’s economic situation deteriorated, its citizens got the sense that the loans were not really intended to help them, but rather to bail out German and French banks. With this narrative, Greeks could avoid admitting the role of their own government’s policy mistakes in thrusting them into recession.

Greece’s creditors, by contrast, felt that they had generously saved a profligate country from bankruptcy. This narrative allowed policymakers in Germany to disregard the fact that their country’s banks had financed Greek borrowing for too long.