The Price of European Solidarity

In true “one minute to midnight” style, the new Greek bailout proposal arrived in Brussels yesterday, having advanced from handwritten notes on a hotel notepad by the new Greek finance minister to a formal, 13-page, 53.5 billion euro, three-year bailout request in a mere two days. Early reviews have trickled in: the proposal has been called “serious and credible” by the French; “a thorough piece of text” by the head of the Eurozone Group; and has been met by deafening silence from the Germans.

There is very little new in the Greek proposal compared to what has been argued and debated for the past six months—with the critical exception that the proposal does not take into account the significant deterioration of Greece’s economic situation over the past several weeks. The latest proposal includes the same primary budget surplus figures; higher value added, rental income, and corporate taxes; and a raising of the retirement age in return for, as yet, unspecified debt relief. Extraordinarily, the proposal is more restrictive than the “best and final offer” that was presented to the Greek government by its creditors two weeks ago—the same proposal that 61 percent of the Greek people rejected last Sunday.

It is extremely difficult to understand what the last six months were all about and what they were designed to accomplish. To recap, Alexis Tsipras was elected on January 25 of this year to end austerity as represented by the memorandum between Greece and its creditors, while at the same time keeping Greece in the eurozone. Over the course of five months, the Greek government reversed many of the reforms that were required by its creditors by rehiring civil servants and reversing privatization programs. And, on June 30, the dreaded memorandum and bailout program came to an end, the country defaulted on its loans to the IMF, and Greece remained in the eurozone. Perhaps the Tsipras government can claim that it did achieve its campaign pledge after all.

But at what cost? Prior to the election of the Tsipras government, Greece had ended its recession and its GDP increased by 1.7 percent over a 12-month period after receiving nearly 240 billion euros in two bailout funds over five years. Fast forward to today: capital controls in Greece have been in place for two weeks; euros, gasoline, medical supplies, and food are all scarce; Greece’s banking system is on the verge of collapse; tourism is down by roughly 30 percent; and some experts predict that the Greek economy will contract by 3 percent this year. This represents a breathtaking unraveling of an economy and seems to be a terribly high price to pay for the democratic choice to thwart your creditors while trying to remain in a monetary union.

Over the next 48 hours, Greece’s creditors will decide if these 13 pages of text are sufficient in return for 53.5 billion euros. By my calculation, that represents a little over 4.1 billion euros per page. If Europe holds true to what it has done since the beginning of this crisis, it may very well “extend and pretend” for a third time. However, just as the Greek government has repeatedly pointed to its democratic mandate following last week’s referendum, at least six other eurozone parliaments (Austria, Estonia, Finland, Germany, the Netherlands, and Slovakia) must approve the third bailout package (which the IMF is already suggesting is insufficient to cover Greece’s future financial needs). The democratic mood music in all six countries is strongly against providing further financial assistance and the package is unlikely to be approved by all six. The result? European solidarity continues to crumble and the future of the European integration project is profoundly questioned.

Finally, deep fissures have reappeared between France and Germany over the handling of the Greek crisis with French authorities helping to craft the Greek proposal and pronouncing their work as satisfactory. Consciously or not, by playing this role France is now the principal defender of the monetary rule breakers—rules on budget deficits and debt that France itself has violated repeatedly. This posture stands in stark contrast to Germany’s deep desire to create unbreakable (or at least severely punishable) rules. France does this to counterbalance Germany’s economic and political dominance, meanwhile European solidarity continues to weaken by the hour. What a high economic and political price to pay for a monetary union.

Heather A. Conley is senior vice president for Europe, Eurasia, and the Arctic and director of the Europe Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

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