Would you buy a used car from Greek Prime Minister Tsipras?
“Isn’t it a beauty? Yes, I know the chassis needs major structural overhaul. And the shock absorbers need to be replaced. I also see the body’s rusted. But trust me. If you give me your money now, I promise that in three years, this car will be purring like a kitten.”
“What’s that you say? Well, of course I remember making the same promise six months ago. And I know a previous owner tried to fix ’er up too. But trust me, this time will be different. And you won’t regret it. Even though you have 18 other reasonably performing vehicles, you really need this one to complete your stable. And if you don’t give me more money, you run the risk of having one or two of your existing fleet repossessed by creditors.”
As we read our Missoulian newspapers this morning, European leaders are meeting in Brussels, making decisions that ultimately will determine the fates of Greece, the eurozone, and even the European Union itself. European Union President Donald Tusk called it “maybe the most critical moment in our history.”
How did Greece and Europe get to this point?
I believe it’s because national politics and public opinion are trumping perceived economic logic in this case, as they have at other key junctures of the European Union’s construction. Even if Europe’s leaders manage to patch together another bailout for Greece, any new deal will, in my view, only delay the inevitable “Grexit,” or Greek departure from the eurozone and its common currency.
Born from the ashes of two world wars, the European Union has borne out its founders' dreams, with members enjoying the longest period of peace in their collective history. But political ambitions for deeper and wider union have outpaced the laying of sufficiently strong foundations to support this growing structure, especially among Europe’s 19 eurozone members.
The euro currency came into being in 1999 with 11 countries at its launch and 19 today. But important institutional pillars were never built to allow for the smooth functioning of a true monetary union.
Imagine, for example, having all fifty U.S. state governors and a sizeable number of state legislatures vote on whether or not to use federal funds to bail out struggling banks and governments in states hit hardest by the 2008-2009 financial crisis. Not just once, but several times. And even then, after they themselves had tightened belts and taken politically unpopular steps to weather the crisis.
Yet that is the case in Europe today. Europe is now a more diverse grouping than ever and includes countries with widely differing economies, cultures, and governing traditions. Most eurozone economies are still struggling to rekindle growth, and far-left and far-right parties are gaining ground among people who feel mainstream leaders have let them down.
Voters and elected officials in eurozone countries have tired of Greece’s brinksmanship and of repeated bailouts that have seen the transfer of hundreds of millions of euros into Greek bank and government coffers. The Greek people, too, have tired of recriminations from northern neighbors and of the austerity and high unemployment levels they have endured since the global financial crisis.
But Prime Minister Tsipras’ gamble that the eurozone needs Greece more than Greece needs the eurozone has led his country to the edge of a precipice, with little to break its fall if it goes over.
Unlike some analysts who serenely reassure us that “Grexit” will not cause major shock waves, I believe Greek exit from the euro will carry heavy costs for Greece and the greater cause of European unification. Greece’s economy will suffer greatly without outside support, and political and social unrest could be ignited. For the eurozone, "Grexit" will end its perceived invincibility and increase market pressures on other weak economies. And Europe’s hopes for a unified continent forging a prosperous future together will be badly tarnished.
The outcome of the ongoing drama also could impact us here in Montana. Instability in Europe, with or without “Grexit," could make the Federal Reserve reluctant to raise interest rates later this year, as is widely expected. That means that today’s historically low rates would continue, leaving Montana retirees, savers, and investors waiting for higher returns.
In today’s world of unprecedented foreign policy challenges and geopolitical unrest, the United States needs a strong, outward-looking Europe, capable of contributing to global peace and stability. Sadly, we now see a Europe embroiled in a crisis of its own making.
Joanna Shelton was deputy secretary general of the Organization for Economic Cooperation and Development in Paris; held senior positions in the executive branch and Congress in Washington, D.C.; and teaches at the University of Montana. She writes from Moiese.