Europe’s Deal with Greece Nearly Splits the Eurozone

Europe’s Deal with Greece Nearly Splits the Eurozone

Leaders of the eurozone nations put Greeks and other Europeans on urgent notice at a hastily called summit in Brussels late Sunday evening: The group worked through the night and agreed to a new $100 billion bailout with serious reforms attached. Now the Greeks have 72 hours to pass these measures in parliament--not an easy task, given the July 4 "no" vote.

By Wednesday evening it will be clear whether Greece will remain among the 19 nations now in the currency union or whether it will be the first in the euro’s 16-year history to go its own way. 

Related: Why Greece Can’t Grow Its Way Out of This Mess 

The talks that led to this moment concluded an astonishing weekend of bobbing, weaving, backpedaling, and nose-to-nose negotiation. Eurozone finance ministers met for more than 10 hours Sunday, at the end of which they handed a four-page document to a hastily convened summit of euro zone leaders. 

It contained what amounts to an ultimatum, and it’s what eurozone leaders gave Greek Prime Minister Alexis Tsipras: Make this list of rigorous new reforms law and get your parliament to pass it before Wednesday night. Only then will the third bailout program, now expected to be worth $95.6 billion, be implemented. Otherwise, it’s over. 

A couple of new realities are suddenly evident. 

• It’s up to Tsipras now to get this deal done or lead Greece out of the euro. How hard will he fight for a package of reforms that, in some of its conditions, is certain to offend his electorate and many in the governing Syriza party? How much resistance will he meet among influential Syriza factions sporting deeper shades of red? 

These questions won’t be answerable until Tuesday or so. Let’s assume for the moment Tsipras is still in the prime minister’s office by then. 

Related: Greece—The Self-Inflicted Wounds of a Careless Country 

• Eurozone leaders spoke with one voice at midnight Sunday Brussels time. But no one should be misled: The European Union is a house deeply divided at this moment. Greece is the wedge that splits it apart, but there’s nothing sudden about this breach: The exposed fault line was baked into the EU cake from the start. 

Don’t be misled on this point, either: Dickering over new details of a prospective bailout isn’t nearly as important as where political power—in the EU or in the sovereignty of a member—is seen to lie at the end of the process now reaching its denouement. 

Even a few weeks ago, the standard line was that the Greeks simply didn’t measure up to the fiscal and economic conditions the EU demanded in return for further bailout assistance. This no longer holds—if it ever did. 

As of this past weekend the politics of the piece are plain. While Greece’s left social democratic government has been a thorn in the EU’s side since it came to power in January, that’s not the only issue now. At least as consequential now are German politics and EU politics as the Germans see them. 

Related: Greece’s New Marxist Finance Minister—More Polished? More Radical? 

This is big. By no one’s design, the Greek crisis amounts to Germany’s (and Chancellor Merkel’s) first turn as postwar Europe’s de facto leader. And you have to mark this term paper in red ink: The key to European unity doesn’t lie in forcing everyone else to be German, which appears to be Berlin’s much-unenlightened thesis.  

This leads to another, deeper source of tension. As argued previously in this space, Europe’s fissure has cultural and historical dimensions that have long been brushed aside but are now ignored to everyone’s cost. Never mind the Continent’s East-West divide: The distinction between Northern Europeans and Southern, Nordics and Latins, is kicking in big time. 

The split in front of us now was instantly evident after Tsipras went back to Brussels, Frankfurt, Berlin, and Paris after Greece’s “no to austerity” vote last week with a proposal that gave EU institutions and leaders virtually all they had demanded. Senior French and Italian officials quickly advanced favorable appraisals of the new Greek program. 

Simultaneously, the hawks swooped in. The generalissimo among them, of course, is German Finance Minister Wolfgang Shäuble, whose view that Greece should be pushed out of the eurozone altogether has been all but stated for months. Behind him stand the Finns, the Slovaks, and other less-powerful members of the currency union. 

Related: Why Germany’s Hard Line with Greece Carries Enormous Risks 

By this weekend, these positions had hardened. French President François Hollande insisted that Greece deserved a new deal, and Italian Prime Minister Matteo Renzi joined him. 

Late Saturday, Shäuble’s ministry leaked a counter-proposal: Athens must accept another, more sweeping reform package. It would have to include (1) a depositary vehicle into which Greece would transfer $55 billion in state-held assets—airports, ports, oil refineries, and the like—for privatization and (2) direct European Commission supervision of the Tsipras administration. 

Anyone familiar with the Greek crisis knows what Wolfgang Shäuble knows damn well: Privatizations are an exceptionally sensitive sticking point for the Greeks, and assigning the EC to oversee Athens is an insult few Greeks—or anyone else in a similar circumstance—would be likely to accept. 

A diplomat in Brussels, quoted by Reuters Sunday evening, said these demands were “tantamount to turning Greece into a German protectorate.” 

Frankfurter Allgemeine Sonntagszeitung, the German newsweekly that obtained the leaked document, said it included a finance ministry plan for Greece to exit “for at least five years.” 

Related: One in Two French Want Greece Out of the Euro 

Since Tsipras went home with many or most of the German finance ministry’s demands in his briefcase, the weekend in Brussels looks like a victory for the EU’s hawks. The intent seems plain: What the Greek leader must sell back in Greece—assuming he chooses to—amounts to intentionally antagonistic conditions that could prove the quickest way to force Greece out of the eurozone. 

The question now—and a lot of people are starting to ask it—is whether Shäuble and his allies intend to use Greece as a warning to other members, notably France and Italy—major economies that have resisted austerity’s rigors on one or another issue. Yanis Varoufakis, Greece’s just-departed finance minister, argued in an opinion piece last week that France is Shäuble’s true target, Greece the object lesson. 

From far beneath this split in Europe, a cultural fault line breaks through the surface. Look at the nations now lined up on either side of the Greek crisis: French and Italians stand in opposition to Germans and Finns. 

Whichever way the Greek crisis goes this week, we’ve already learned fundamental things from it. One, Europe needs a leader who can accommodate diversity within the union—if not embrace it as high among the Continent’s strengths.   

Two, Europe isn’t there yet. 

This column was updated Monday morning, July 13th, at 7:50 am.

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