Clive Crook
Ahead of Monday's European Union summit,
the only thing you can rule out is a happy ending. Whatever happens at
the leaders' meeting -- even if a deal of some sort emerges -- the EU
has suffered lasting and perhaps irreparable damage. The available
choices run from bad to terrible.
The costs to Greece and to the EU of a default followed by Greece's
ejection from the euro system could be huge. But even if the worst
doesn't happen, Europe has suffered a total breakdown of trust and goodwill. That can't easily be undone -- and it's a dagger pointed at the heart of the entire project.
Two things, I believe, will strike historians as they look back on
this collapse of European solidarity. The first is that the principals
were able to draw such a poisonous dispute out of such an easily
solvable problem. The second helps to explain why that was possible:
Greece and its partners fell out thanks to a delusion they have in
common -- the idea that sharing a currency can leave fiscal sovereignty
intact.
On the eve of the summit, the economic distance between Greece and its creditors is small.
Differences over fiscal targets have narrowed down to timing -- what
happens next year rather than the year after -- and fractions of a
percentage point of gross domestic product. There's even tacit agreement
that further debt relief
will be needed as part of a successor bailout program, though the
creditors won't discuss the details until the current program is
completed. That's a procedural rather than substantive issue, and it
simply shouldn't matter.
The problem is that the creditors don't trust Alexis Tsipras and his
Syriza ministers to hit the targets they might sign up to. The creditors
don't even trust them to try. They want firm commitments to specific
policy changes -- tax increases and new retirement rules to cut pension
spending -- that Tsipras has promised not to accept.
Again, the revenue these policies would generate is small in relation
to the fiscal adjustment Greece has already achieved and to the
forecasting errors involved in all such calculations. It isn't the
numbers that separate the two sides. Greece and the creditors are
standing on principle, and oddly enough it's essentially the same
principle -- that of sovereignty.
Greece has had enough of being dictated to by the rest of the EU. Of
course, its government wants debt relief and a milder profile of fiscal
adjustment -- and that's justified, because without them the Greek
economy will recover too slowly, if at all. But more than debt relief
and softer fiscal targets, Greece wants to be back in charge of its own
policy. Its years under the creditors' supervision have been terrible.
Being force-fed any more of their medicine is what the country rejected when it voted for Syriza.
The creditors believe in sovereignty just as much. They don't think
their taxpayers should be on the hook for Greece's failure to balance
its books. They too have a point. The sovereignty Greece demands
shouldn't come at others' expense. Responsible sovereign governments
recognize a budget constraint: They see there's a limit to how much they
can safely borrow. And if they exceed it, they, not their neighbors,
suffer the consequences.
What neither side will acknowledge is that monetary union, if it's
going to work, has to infringe the sovereignty of creditors and
borrowers alike. Without national currencies and interest rates to act
as shock absorbers, fiscal flows
across borders are necessary to help smooth out economic fluctuations.
This needn't mean a permanent flow of subsidy in one direction; it does
mean temporary reversible flows from countries with low unemployment to
countries in recession. In the particular case of Greece, it requires
from the creditors further patience and fiscal support.
If this is what Germany and other creditors are ruling out when they say they will have no part of a "transfer union," the euro system will be permanently biased toward stagnation.
But the essential quid pro quo is that borrowers must accept limits
on their fiscal freedom as well -- or else the consequences of reckless
borrowing are borne by other members of the currency area. There's the
deal: To make monetary union work, some limited sacrifice of fiscal
sovereignty is necessary on both sides.
The EU's efforts to address this problem with mechanical fiscal rules
have failed at every step. Now, by stirring so much mutual contempt,
the Greek crisis may have put the solution permanently out of reach.
Pooling of fiscal sovereignty -- an expression of political solidarity
-- is what both sides in this quarrel have set their faces against, and
with steadily mounting fervor.
Greece isn't willing to do what it takes. Nor is Germany. Nor, after
four months of being called pillagers and criminals by Tsipras, are the
other creditors. Yet don't say they disagree. All through this crisis,
there has been more agreement than meets the eye: They have agreed, it
seems to me, on the impossibility of making this system work.
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