France Takes Greece's Side Against Germany
You can't exaggerate the importance of France's decision to align itself with Greece before this weekend's crisis meetings. As Wolfgang Munchau correctly notes in the Financial Times, Prime Minister Alexis Tsipras has finally succeeded in dividing the creditors. A split between Germany and France, no less, and on an issue as momentous as this -- on the course of the entire European project -- isn't just any division.
Ignore all the expressions of bewilderment over Tsipras's acceptance of terms he and his country just roundly rejected. That's all beside the point. He had already capitulated -- weeks ago -- on the larger part of the fiscal obligations in the creditors' last offer. He was holding out for a commitment to debt relief now, rather than talks about it later.
That's the condition he's dropped, and rightly, because a consensus has finally emerged that debt relief, one way or another, will follow if some kind of deal is done. In return, he's secured France as an ally against Germany. That's a pretty good deal for Greece.
The much more consequential U-turn is in Paris. Suddenly, Tsipras's promises on fiscal policy are "serious, credible," according to President Francois Hollande. In truth, of course, they are exactly as serious and credible as they have been for the past five months. Even if Tsipras becomes a born-again fiscal conservative and actually tries to keep these promises, he'll fail -- and everybody knows it.
A tightening of fiscal policy as the economy falls further into recession is anti-growth and fiscally counterproductive. Those primary-surplus targets that the creditors want carved in stone are almost impossible to hit.
The crucial thing about the new Greek proposals is not that they're significantly different from the last set, but that French officials helped to shape them. In this long and convoluted saga, that's a stunning development. Instead of the usual pre-emptive dismissal from German Finance Minister Wolfgang Schaeuble -- saying the new offer has nothing new, is worthless, and what do you expect from the Greeks? -- we have a pre-emptive declaration of breakthrough from Hollande.
This by no means guarantees success. Certainly, the chances of a genuinely good outcome -- softer fiscal targets, prompt agreement on debt relief, and a fully functioning lender of last resort -- are still vanishingly small. But the likelihood of a bad agreement, one that keeps Greece in the euro system and lets its banks reopen without resolving the underlying problems, has surged. I maintain that a bad agreement of that kind is somewhat better than none, and since those sad alternatives are all the EU seems able to contemplate, I suppose I shouldn't complain.
The question for France is, what took you so long? If Hollande had intervened this forcefully five months ago, the savings for European taxpayers, to say nothing of Greece's citizens, would have been colossal. The question for Berlin is, how much does your alliance with Paris still matter to you?
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