Knock-down-drag-out marathon negotiating sessions July 11-12 on a third multibillion-euro bailout for Greece revealed deep splits within the common currency zone. Once viewed as irreversible, German Chancellor Angela Merkel and her Finance Minister Wolfgang Schaeuble made clear if the Greek parliament doesn’t implement new reforms then the bailout deal is off, forcing Greece back on the drachma it left to join the Eurozone Jan. 1, 2001. When the Eurzone formed in 1999, it tried to get all 29 members of the European Union and Great Britain to join, convincing countries like Greece that they’d never again face unwieldy inflation and endless currency devaluations. Members of the Eurozone led by Germany, France, Netherlands, Belgium and Luxemburg all thought they were taking part in the ultimate marriage of Europe’s disparate economies and identity.
Beyond the stability of a common currency, founding members of the Eurozone wanted to prevent for posterity Europe ever facing the destruction and indignity of another world war. European Central Bank President Mario Draghi noted in 2012 that “political capital our leaders have invested in this union and European support for it” would be permanent. “The euro is irreversible,” claimed Draghi in 2012 at a time when Greece completed another bailout worth over 140 billion euros. One of the founding members of the Eurozone and head of the European Commission Jean-Claude Juncker insisted last night’s third Greek bailout proved the “Grexit” was all but gone. With Greece living on borrowed time and money, no one in 2001 imagined there’d come a time when members of the Eurozone could exit. EU and Eurogroup officials now know that no one’s truly infallible.
When Greece entered the Eurozone in 2001, Prime Minister Konstantinos Simitis hoped for the best, seeking to end Greece’s double-digit inflation and currency devaluation. Joining the Eurozone offered Greece unprecedented stability in exchange for ending its printing and coinage rights, putting all its eggs into the European Central Bank basket. Promised permanence, Konstantinos new nothing about a possible “axe” if Greece didn’t comply with Eurozone standards. “In case no agreement could be reached, Greece would be offered swift negotiations on a time-out from the euro area,” said the most recent draft accord before Greece accepted July 13 the terms of a third bailout. When the Eurozone launched in Jan. 1, 1999, it had its skeptics in the U.S., Great Britain and elsewhere. No one thought of how the euro would work in less export-based economics in Southern Europe.
Over the last 16 years, it’s clear that northern Eurozone countries, except Ireland, weathered economic storms better than southern European countries, especially Greece and Potugal. Since Greece’s most recent economic collapse, fingers have pointed at Germany showing a heartless approach to the Hellenic Republic’s economic woes. Greek Prime Minister Alexis Tsipras has gone over the top blaming Germany for Greece’s problems. Yet when Greece joined the Eurozone in 2001 there were warnings then about how Greece would fair on the euro. Joining the Eurozone prevents all members from coining or printing currency, leaving state treasuries at the mercy of the ECB. No one the Eurozone considered what happens when a Eurozone state runs out of cash and has no way of getting any. Having no way to print or coin money puts an economy at a distinct disadvantage.
Since economic crisis came to a head June 28 imposing capital controls on Greek banks, Prime Minister Alex Tsipras leftist Syriza Party, especially his former Finance Minister Yanis Varoufakis, ripped Germany for making a new bailout difficult. When Tsirpas defaulted on a 1.6 billion euro payment to the International Monetary Fund and called for a national referendum on economic austerity July 5, the Eurogroup stopped negotiating with Greece. Both Tsipras and Varoufakis threatened to resign if Greeks voted “no,” essentially for more austerity. When Greeks voted “yes” July 5, Tsipras thought he had more leverage for a better bailout. His plan backfired, forcing the Eurogroup to consider squeezing Greece out the Eurogroup. Whether or not the original Eurozone didn’t include a mechanism for dropping out, Greece’s economic calamity raised the “Grexit” as a real possibility.
Insisting the Germans, or others for that matter in the Eurogroup, were trying to punish Greece completely misses the point. If a common currency doesn’t work for a particular economy, the Eurogroup should have a mechanism for returning to a country’s original currency without threatening the euro. No one, including Eurozone founders like Luxemburg’s Juncker, really believes in the infallibility of the euro. Judging by three consecutive bailouts, the euro doesn’t work for Greece. No country should be forced to stay in the Eurzone when one currency doesn’t fit all. “This is not about what type of Europe we’ll have in the future and [its] relative powers—and this, ultimately, is a battle between Germany and France,” said Erik Nielsen, chief economist at UniCredit. Germany isn’t picking on anyone politically, it simply wants Eurozone members to pull their own weight.
