Love among the ruins.

Photographer: Christopher Furlong

Why Does Europe Still Want Greece?

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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So Greece and the rest of the euro zone have a deal. It turns out I was wrong last week when I suggested that after the referendum, the negotiations were down to two choices: The European Commission, European Central Bank, and International Monetary Fund would capitulate and offer better terms, or Greece would exit the euro. With marvelous ingenuity, Europe has charted a third course: Having put the matter to a referendum in which Greeks overwhelmingly voted not to agree to the tough conditions set down by Europe, the Greeks capitulated and agreed to much tougher conditions than the ones to which they had just given a heartfelt "oxi." This weekend's last-minute, ticking-time-bomb summit was a stinging rejoinder to anyone who believed that Greeks have no instinct for self-preservation, or that Germans -- who actually floated a proposal for a five-year Greek "temporary exit" from the euro -- have no sense of humor.

QuickTake Greece's Fiscal Odyssey

The Greeks don't have much choice but to agree to this deal, unless they're brave enough to endure deeper austerity and banking crisis right now in the hopes that exiting the euro will eventually give them the breathing room for sustained economic growth. Of course, the deal as written will be hard for the Greek government to carry out, and will likely mean a long and deep recession that will make all this debt service more difficult. Outsiders trying to gut-renovate the economies of other nations into something more like Northern Europe do not exactly have a glorious track record of success. The risk that Greece will ultimately exit the euro therefore remains very much with us.

But beyond contemplating this prospect, I have also found myself reflecting upon a question that Professor Stephen Gale asked me back in the early 1990s, when I was taking his class in terrorism at the University of Pennsylvania. No, wait, Germans, stop eyeing the door. I am not going to compare you to terrorists. It's just that Professor Gale asked me a question that Europeans are finally starting to ask themselves, long after they really should have.

We were discussing Northern Ireland, and as a proud great-great-granddaughter of Armagh, I was joining in the rather spirited repartee. He stopped me in the middle of some no doubt passionately ill-considered comment, and said "You still haven't asked the fundamental question. Why do the British want Northern Ireland. What's there for them? Guiness?"

This was a question that I had not heard any Irish American ask.  And my lack of an answer for it showed how good a question it really was. Northern Ireland certainly wasn't generating fabulous wealth for the shriveled British Empire. Politically, it was a giant nightmare. You could easily understand why the terrorists were so passionate about Northern Ireland's fate: They lived there. But to understand what the British were up to, you had to resort to a lot of complicated emotional explanations about values and history. If it had just been a matter of naked self-interest, they'd have been out of there like the proverbial shot. The reason that they're still there is that they have studiously decided to avoid asking what's best for Great Britain.

I've thought about that question a lot over the past five years, and never more than this weekend. Why is Europe so attached to Greece? Is it the delicious gyros?

It's easy to understand why the Greeks want to stay in the euro: They need the regular infusions of cash from creditors. The attractions for Europe seem much more elusive. Greece is not exactly a stellar export market right now. Tourism and Greek goods would probably be cheaper for Europeans if Greece were to exit. And if they stay in, the best-case scenario is probably that Greece turns into something like southern Italy -- a poor cousin that never seems to develop no matter how much money is funneled into it. The worst-case scenario is that in a couple of months, or a couple of years, they'll be back around the table negotiating yet another round of emergency measures.

To answer the question about why the euro zone would want to hold onto Greece, I think you have to get into the same kind of emotional and historical attachments that Britain has to Northern Ireland, except of course that it's the euro that Europeans are attached to, not the remnants of a fading empire. And I think that this weekend we started to see the limits of those sorts of attachments. A lot of smaller countries are getting to the "I have had enough" point. Germany seems as if it might be ready to join them. It looks as if the coalition of the unwilling came pretty close to carrying the day during this weekend's marathon talks; the only thing that saved them was heroic efforts by the shrinking core that was absolutely determined to make a deal.

That suggests to me that we are now at the make-or-break moment for the Greek-Euro relationship. Either Greece will succeed with a fairly brutal austerity plan to the satisfaction of its euro-zone partners, or the next time they come to the table, the Greeks will be signing divorce papers. Because once you start asking yourself why you want to be in such a costly relationship, you've already got one foot out the door.

  1. I'm sure that actual Irish people have a more sophisticated understanding than the Irish Americans in my class, since -- as they never tire of informing one -- they find our naive attachment to a country we've never lived in hilarious in the extreme, and also, very tiresome.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net