GREECE SHOULD LOOK WEST – BUT BEYOND EUROPE
Over several meetings with community leaders over the summer, senior Obama Administration officials professed the U.S.’s commitment to keeping Greece in the euro and an integrated Europe, and to answer the following question in the positive: “Does the Maastrich treaty have a future?” If we want to preserve the consensus in Athens that Greece should remain a frontline Western state, Americans should stop linking helping Greece with European integration or the Maastricht treaty.
Europe is falling apart. This summer’s crises – both the euro crisis and the refugee crisis – may have been the tipping point, but the seeds of Europe’s failures in 2015 were planted long ago. Europe’s “original sin” came with the establishment of the euro, when Greece became the 12th — and last — country to join the eurozone before the launch of the single currency, the euro at the beginning of 2002. A monetary union without full economic union, the eurozone proceeded without the basic institutions or safeguards of a monetary union. For the better part of a decade the currency bloc went hurtled towards an economic tailspin without: (a) any emergency financing mechanisms until 2010, when it developed the European Financial Stability Facility, the European Financial Stabilization Mechanism, and now the European Stability Mechanism (established in 2012 and now carries out the duties of the previous two mechanisms); or (b) a central bank that was committed to full employment (because of Germany, the European Central Bank (the ECB) prioritized inflation above all else); and (c) procedures to remove a country from the euro (a problem that exacerbates the crisis today).
When the crisis hit Greece, Europe married its inadequate institutions to incoherent policies. Instead of getting to debt restructuring immediately, the EU and ECB, with an assist from the IMF, focused on preventing a Lehman type contagion and following the “too big to fail” logic on banks provided loans to repay the private lenders who Greece could no longer pay. This literally kicked the can down the road; it didn’t put a dent in Greece’s debt, but resulted in recessionary measures (austerity policies) that would exacerbate the debt crisis. By the time Greece’s private sector debt was restructured in 2012 (it would be the world’s biggest debt restructuring, affecting 200 billion euros of bonds, and private debt holders took a 53.5% haircut on the original value of their bonds), the Greek economy was already devastated. Of the 250+ billion euro bailout that Greece received, only 10% went to the Greek government while the rest went to paying creditors. In the meantime, European governments – wanting to avoid the admission that they bailed out their own banks (and bailed out many of them prior to debt restructuring) – stayed silent as anger against the “Greek bailout” (should have been called “the bailout of Greece’s lenders) rose across the continent.
The extreme recessionary impact of these policy failures, the length of the debt crisis, the fact that it gave rise to SYRIZA, ANEL, Golden Dawn (or Hungarian, French, Danish and Finn nationalists) might have given reasonable people doubt. Instead, Europe doubled down. But to what end? For Maastricht to survive, further European integration is needed. That process will require the ceding of authority to Brussels from national capitals. After following the marathon “negotiations” (they reminded me of British torture tactics against IRA members described in a famous European Court of Human Rights case) between Greece and its European creditors, it nearly impossible to envision the scenario where smaller countries cede further sovereignty to Berlin. . .I mean Brussels.
Economic integration will not only fail to proceed, it will fall apart if the EU maintains the status quo. Unfortunately, neither Brussels nor Berlin are proving adept at admitting mistakes or calling audibles. The inept response to the refugee crisis is proof of that. Having irresponsibly neglected illegal immigration from Turkey into Greece for years, Europe looked the other way as the refugee crisis in the Mediterranean and Aegean got worse and worse. When the crisis hit a tipping point, European countries started building walls, suspending the Schengen area, and leaving its poorest and hardest hit member states to deal with a disproportionate number of refugees.
The two most visible accomplishments of the European project – a single currency and open borders – have an uncertain future. Europeans are ranking each other according to trustworthiness and laziness. Some Europeans are recalling Germany’s Nazi past, while neo-nazi parties are on the rise across the continent. Europe is not trending in the right direction.
The U.S. does not have the luxury to passively wait for Europe to get its act together. In case we have forgotten, the 9/11 terrorists made their way to the U.S. from Europe. Greece is not merely guarding its borders, or Europe’s borders; it is guarding the borders of the West. Greece will play an increasing role in energy diplomacy – both as a transit point and an independent producer of energy. And Greece is a member of NATO that houses a key facility (Souda Bay). These are just but a few of the many reasons Greece is a key strategic asset for the U.S.
Maastricht may be dying. If it is resurrected and it reaches its potential, it has to be on the back of compromises Germany has to make. The U.S. has to worry about keeping Greece rooted to the West, not necessarily to a flailing – if not failing – European project. It is not time to keep Greece on the euro “at all costs”; it is time for a 21st century Truman Doctrine.