Want the Euro? Be More Like the Germans
The deal European leaders struck with outmatched Greek Prime Minister Alexis Tsipras on Monday morning will probably end in failure: It's hard to imagine a country that has not lost a war giving up its sovereignty to the extent that Tsipras has promised. The agreement has, however, demonstrated that a common currency like the euro has a low tolerance for democracy's wilder extremes.
Few remember the platform on which Tsipras's party, Syriza, came to power last January. The Thessaloniki Program proposed costly measures to rebuild the welfare state, spoke of the need to write off Greek debts as creditor nations did for Germany in 1953, and blasted Tsipras's predecessor, Antonis Samaras, for being too pliable:
We are ready to negotiate and we are working towards building the broadest possible alliances in Europe. The present Samaras government is once again ready to accept the decisions of the creditors. The only alliance which it cares to build is with the German government.
This reads like cruel irony now. Tsipras did not want an alliance with the Germans, but he has now agreed to let them and other northern Europeans control Greek ministries, veto bills and oversee a holding company set up to monetize -- through selloffs and otherwise -- Greece's most valuable state assets. The country will be under outside supervision as tight as that which Germany was forced to accept after it lost World War II.
If Greece could endure this arrangement for a few decades as Germany did, it might become a more modern nation with more responsible government. I doubt it will. Its people, quite rightly, do not feel the kind of overwhelming shame and contrition that Germans felt after the collapse of the Third Reich. If I were a Greek depositor, I'd rush to get my last euros out as soon as capital controls are lifted. I'd know in my gut that even if European leaders were afraid to let the euro start falling apart on their watch, Greece will be back in trouble sooner rather than later. Having passed up its chance to default on 310 billion euros of debt and leave the euro, it will eventually have to contemplate defaulting on 350 billion or more, counting the extra burden from a new bailout.
The euro is essentially the successor to the Deutsche mark, whatever other Europeans might think of it. Germany's currency had far more global weight than those of the other members before the monetary union was created, and Germany's exit would destroy the euro immediately. By contrast, the common currency could feasibly survive the exit of any other member, probably even France. If you want to use an essentially German currency, you have to be a little German. That means low or nonexistent budget deficits, extreme tax discipline (tax dodging in Germany is not just a crime -- it causes genuine moral outrage), and a rule-based approach to government and economic life.
Europeans like the euro, and most of them make an honest attempt at German-ness. Ireland, Spain and Portugal endured the pain associated with their bailouts and emerged economically stronger. Their political landscapes are also more German: The center left and the center right, increasingly indistinguishable from one another, alternate in power or even share it, and the extreme right and extreme left are marginalized.
In Greece, the extreme left won. That was extremely un-German. The result is politically -- and probably economically -- disastrous for Greece.
The message for other euro countries is that if they want to enjoy the trade, convenience and interest-rate benefits of the common currency, they cannot afford to elect the far left and far right. The German-led currency union will fight back and make it painful. If Podemos wins in Spain, or if the Finns Party triumphs in Finland, they will need to take their countries out of the euro area to escape Greece's fate.
Those on the extreme right get it: They are all anti-euro. Most of them are also anti-EU, but that is probably excessive. As a trade bloc and even as a loose confederation, the European Union is tolerant of political extremes. It can put up with a nationalist quasi-dictator like Hungary's Viktor Orban or an unprincipled eccentric like Italy's Silvio Berlusconi, and it would put up with a Marxist like Tsipras or a xenophobe like France's Marine Le Pen. The euro area, however, doesn't do diversity.
Now, both Greeks and other Europeans will need to decide what they're going to do with this knowledge. This doesn't have to be the end of the European project. It's just a moment of clarity on how its different tiers work.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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