Europe's Crisis Averted (Until Monday)

Smiles, for now.

Photographer: JOHN THYS/AFP/Getty Images

With their tentative agreement on financial aid for Greece, the euro zone's finance ministers have paused a drama that could still end in disaster and that should never have happened in the first place. The deal outlined on Friday won't be concluded until next week, and could still fall apart, but Friday's talks are being seen as a breakthrough.

With luck, the deal will stick. Whether it sticks or not, the European Union needs to study the shambles of the past few weeks and resolve never to repeat it.

Greece and its partners haven't been talking about Greece's long-term economic strategy -- that's for the next negotiation, on the terms of a new program. The impasse has been over giving Greece's new government breathing space, so that this bigger discussion could proceed without the risk of financial collapse.

Greece's Fiscal Odyssey

The standoff would have been easier to understand if there were disagreement over the need for a new long-term program. On the whole, there isn't. The current program's aim was to make Greece's debts sustainable, and in this it failed, mainly because Greece has suffered an unexpectedly severe recession. Standing at 177 percent of gross domestic product, its debts are still too high -- even allowing for concessions already granted on interest rates and extended maturities. Further relief won't just help Greece; it's likely to be in the creditors' interests as well.

Equally important, the current program requires Greece to keep tightening fiscal policy. Even if that were wise, which it isn't, it's a prospect that Greeks rejected in last month's elections.

So talks on a new program have to happen. Why then was it so hard to let them go ahead calmly? That's a good question -- one that Europe's finance ministers now ought to ponder.

Led by Germany's Wolfgang Schaeuble, the ministers adopted a recklessly hardline position, insisting that there was nothing to discuss until Greece had successfully completed the current program. In effect, they said that they would discuss the need for a new deal only if Greece promised to abide by the terms of the old one. Perhaps Kafka could have explained the logic; Schaeuble never bothered to.

To be sure, the new Greek government is partly to blame for its initial refusal to compromise. Yet it dropped its demands for an outright debt write-down almost at once. That done, the dispute degenerated into a quarrel over the difference between an "extension" and a "bridge" and other fine points of semantics. Toward the end, Greek Finance Minister Yanis Varoufakis said his government was asking his euro-area counterparts to meet Greece "not halfway, but one-fifth of the way" -- and that seemed a fair assessment.

Yet the crisis continued, with Germany, especially, rejecting every concession unilaterally and out of hand. Worse, euro-zone ministers began to deploy Greece's possible ejection from the euro system as something close to an explicit threat.

Whatever happens next week, this week Europe has burnished its reputation for governing by crisis. Its leaders seem not to care that this is a shameful reputation. The EU, it turns out, isn't willing to do whatever it takes to keep its currency system intact. That's a declaration Europe may come to repent.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.