PS21 Insight: Eurozone clinches deal, serious strains remain

Eurozone clinches last-minute deal with Greece

Shows commitment to currency bloc but process has revealed bitter
divisions
Risk of Greek exit remains, reform is likely to prove troublesome

Greece clinched a last-minute deal with Eurozone nations on Monday,

pledging a raft of reforms and spending cuts in return for ongoing
financial support.
Below are comments from several contributors to The Project for Study of the 21st
Century (PS21). Please credit PS21 in any quotes. If you wish to contact the
speakers, please e-mail ps21Central@Gmail.com.
For further details on PS21, please visit http://www.projects21.com.
Sir Michael Leigh is Senior Advisor to the German Marshall Fund of the United
States. He was Director General for Enlargement for the European Commission from
2006-11. From 2003-6 he was Deputy Director for European Commission External
Relations. He is a member of the PS21 international advisory group.
Giulia Pastorella is an Italian political economist and Ph.D. candidate at the
London School of economics
Peter Apps is Executive Director of the Project for Study of the 21st Century.
With yet another deal, no one neither the Greeks nor those in the core
Eurozone is quite yet willing to make the leap of taking Greece out of
the euro. Sunday evenings German-mandated demands that Greece
sacrifice huge chunks of its sovereignty in financial decision-making,
however, saw the process more polarised than at any point so far.
Leigh: The continued readiness of both sides to seek a compromise rather than
slam the door is encouraging. The result, though, is a muddle-through which Greece

and the creditors will find hard to sell to their constituencies. The improvised series
of finance ministers and summit meetings demonstrates the lack of a dependable
system of Eurozone governance and the prevalence of short-term political thinking
over sound economics.
Apps: At first glance, Sundays proposals seemed almost designed to make Greece
choose to leave the euro of its own volition. For now, however, it hasnt done so.
Indeed, the proposals seem to have generated their own popular backlash in Europe
and beyond. And now we have yet another last-minute deal.
For all the talk in Greece of letting democracy into the system with their
referendum last weekend, the simple fact is that the democratic will of the German
electorate and others in Central Europe is opposed to the bailout.
What we now have are fundamental divisions breaking into the open. The
devil here is not the details; it is much larger than that.
Pastorella: Economic principles are not the driving criteria behind the nth round of
negotiation. It is not about how much money Greece should be lent again, or how
much of its debt could be written off. Or at least, not just that. Ideological reasons
as well as national interests are the strong winds pushing the European boat
towards an unknown and undetermined destination.
Ideological splits are not just between the hawks and the doves of fiscal policies.
That would still count as an economic divide. It is more between those countries
that have been through austerity and show sympathy for Greece. And those who,
having gone through the same experience, have taken a tougher stance: if we
managed to reform and survive, surely you can and should- do the same. Amongst
the former group are Italy, Ireland, Spain and Portugal, while the latter include most
CEE countries as well as the Nordics and other unusual suspects, such as Malta.
Same facts, different conclusions. That explains why negotiations are so complex. If
it were just a matter on numbers, technocrats could easily take care of it. But the
technocrats are tied to the mast of the European vessel, muted like Draghi, who has
not really intervened in the recent debate, while European leaders take turns at the
helm.
Both sides need to offer more flexibility.
Leigh: Further crushing austerity measures, exacerbated by minute foreign
supervision, will not lead Greece back to economic growth. Any sweetener in the
form of partial debt rescheduling will do little to make the package digestible to
Greeks who have just voted two to one in a referendum to reject less stringent
measures. Even if the Greek parliament endorses the new bail-out programme,
rather than face the imminent collapse of the countrys economy, Greece may well
go off track rather quickly. Greeks are unlikely to take ownership of the new reform
programme if they feel that it has been imposed in extremis.

The dogma of fiscal consolidation, the narrative of saints and sinners, the rejection
of financial transfers as an inherent part of any functioning currency union and
maneuvering for domestic political advantage continue to distort the dialogue
between Greece and its creditors. It is to be hoped, however, that the narrowlyaverted risk of catastrophe will serve as a wake-up call to Greece and will persuade
Eurozone leaders at last to give the currency union the tools it needs to function
effectively.
The broader damage to the European project may still be serious and long
lasting.
Apps: The euro is at the heart of the broader European project, even if it is
currently by far the least successful part of it. At the end of the day, these
structures were built at the end of the Second World War is an attempt to stop
hostilities erupted in Europe again. The aim was simple to tie the continent
together economically in prosperity to make further war impossible.
The problem is that there have always been different visions of what that means.
For the Greeks and others on the European periphery, it has always been about
redistributing wealth from the rich central states and redistributing it in poorer
countries and regions. Germany and other northern states, meanwhile, have always
seen it as much more about encouraging those countries to be more responsible.
What Greece in particular did not join the euro to do was to cede its sovereignty to
what they see as unreasonable German demands. The success of the hashtag
#thisisacoup this weekend in protest against what many social media users saw as
entirely undemocratic demands on the Greek government is a sign of serious
reputational damage. With the British referendum on EU membership coming out
next year, that could prove important there too.