A survey of the Eurozone debt crisis, by David Cappella.
“Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity.”
Greece is in trouble yet again, on Sunday the country’s voters will decide whether to accept or reject the IMF, ECB, and European Commission’s new debt bailout terms. The terms include austerity measures, tax increases and spending cuts—policies that will do nothing to address the economic malaise the country has been mired in the last six years.
The sources of Greece’s unending debt problems are well known: corruption, clientelism, and inept tax collection within public administration; the contradiction of using bailout money for debt repayments while the productive economy shrinks; and the pressure of bond markets upon indebted countries tied to outside currencies without a fiscal union (a situation that applies to euro-using countries, but not to the U.S.).
On a more fundamental level the heart of the issue is about lost trust and the future of Europe. As an early observer of the crisis, I found survey evidence that the policy response to the 2008 financial crisis and subsequent sovereign debt crisis led to heightened tension and distrust among Europeans. Northern Europeans began to chafe at their tax euros being called upon to bailout the seemingly spendthrift governments of southern Europeans.
Likewise, southerners balked at the austerity conditions that came with the bailouts. (For American readers, imagine after the bank bailouts of late 2008, the U.S. being forced by a foreign government to balance the budget by cutting social security and raising taxes, all to pay back debts to foreign banks!) Beyond the immediate emotional reactions to these unpopular policies are the long term consequences of a more divided Europe.
The Euro crisis has not only displayed the inability of European leaders to unite to resolve pressing economic issues, it has brought Europe face to face with its old historic problem—nationalism. The whole idea of the European Union was born out of a postwar desire for solidarity and peace among Europeans, most prominently between the two most populous, and historically most frequently warring, countries of France and Germany. Since its beginning European integration has moved forward, growing from six countries in 1951 to twenty-eight by 2013, accompanying an unprecedented period of peace and democratization across Europe.
As Greeks consider their future within Europe, it is important that all Europeans consider the consequences of a “Grexit.” Such a step would mean default and a painful readjustment back toward the old Greek currency, the drachma. But more critically, such a move may lead to a reversal of a half-century of European integration, a huge setback for those who worked for decades to ensure a stable and prosperous united Europe.
This is a tipping point: will European leaders extend a helping, not a vindictive, hand to Greece in the wake of the vote? With Greeks tired of paternalism and Germans tired of broken promises, it has reached a point where both sides welcome “Grexit.” Such a solution may satisfy for now, but fractured solidarity and trust bodes ill for Europe’s future. With the return of nationalism, a spectre again haunts Europe.