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Don’t Lend to Your Euro Friends

MUNICH – After months of games and brinkmanship, and only a week after Greek voters rejected the conditions for a €7.5 billion ($8.2 billion) rescue package, the end came swiftly. The eurozone’s political leaders agreed to start negotiations on a much larger package, worth €86 billion, almost half of Greece’s GDP. Unfortunately, the deal reveals Europe’s apparent determination to reenact the same tragedy in the future.

Over the past five years, a whopping €344 billion has flowed from official creditors like the European Central Bank and the International Monetary Fund into the coffers of the Greek government and the country’s commercial banks. But after six months of near-futile negotiations, exhaustion had set in and holidays were beckoning; so the actual conditions for a new Greek rescue were given short shrift. Although the European Financial Stability Facility had officially declared Greece bankrupt on July 3, the eurozone’s leaders kicked the insolvency can down the road yet again.

The latest agreement did halt, or at least interrupt, the eurozone’s biggest crisis to date, culminating in an unprecedented period of antipathy, opprobrium, humiliation, pestering, and blackmail within Europe. Indeed, Greece came within a hair’s breadth of leaving the eurozone.

Former Greek Finance Minister Yanis Varoufakis revealed that after taking office, he assembled a group, with the consent of Prime Minister Alexis Tsipras, that met in secret to prepare the introduction of a parallel currency and the takeover of Greece’s central bank – effectively an exit (or “Grexit”) from the eurozone. Germany’s government also was ready to accept what appeared to be the inevitable. Had French President François Hollande not advised Greece behind German Chancellor Angela Merkel’s back about how to negotiate, events could have taken an entirely different course.