In any great political crisis, there comes a moment when great leadership is required—the sort of leadership that prioritizes the general good over sectional interests, and that shapes events rather than reacting to them. Following Sunday’s referendum in Greece, the European debt crisis, which is ultimately a political crisis, has reached such a moment. Because of the way the European Union works, only Angela Merkel, the Chancellor of Germany, is in a position to preserve not just Greece’s continued membership in the eurozone but the larger vision of an open, democratic, and fraternal Europe that has dominated the continent’s history for the past seventy years.
With many of the Chancellor’s colleagues and electors urging her to hold firm, despite the fact that Greece’s banking system is teetering on the edge of collapse, Merkel might be tempted to play it safe, allowing the arguments of the continent’s finance ministries, central bankers, and tabloid newspapers to prevail. It is likely (although by no means certain) that Wolfgang Schäuble, Merkel’s hardline finance minister, is right when he suggests that a Greek exit from the eurozone, even a disorderly one, would not have a major economic impact on the rest of Europe. Why not wash her hands of the entire thing?
The answer, as Merkel herself has acknowledged in the past, is that a failure to resolve the crisis through mutual agreement wouldn’t merely be a rebuke to the Greeks and a failure of the eurozone: it would violate the ethos of commonality and solidarity on which the E.U. was built. To any European of Merkel’s generation, that would be a monumental failure.
At moments like these, it is easy to forget the many successes of the E.U. project. In the decades after the Second World War, the European Economic Community, as it was then called, helped bind together the core countries of Europe, particularly Germany, France, and Italy, in a manner that finally buried old enmities. During the last quarter of the twentieth century, the European Community—the name “European Communities” dates back to 1967—provided a route to economic modernization and political stability for many other European countries, including Spain, Portugal, and Greece, three nations that previously had been run by military dictatorships. (Contrary to widespread belief, Greece isn’t a new or even newish member of the European community: it joined in 1981.) Of course, economic development across the continent remained uneven. But to take the measure of the European achievement, you only have to look at a country like Ireland or Spain and recall what it was like forty years ago.
After the Berlin Wall came down, the European Union, as it came to be known in 1993, provided a beacon and, eventually, a home for many former members of the Warsaw Pact, including the Czech Republic, Bulgaria, Estonia, Hungary, Poland, Romania, and Slovakia. Today, the E.U. has twenty-eight member states, nineteen of which are also members of the eurozone. Not since the days of the Holy Roman Empire has Europe seen such a multinational, multiethnic assemblage. And this one is a collection of democracies.
For much of the past decade, unfortunately, the E.U.’s triumphs have been overshadowed by the tribulations of the eurozone, which was supposed to be an instrument of further convergence and unity but which, for many European countries, has turned into a suffocating straitjacket. This is not the time to rehash the arguments about whether the E.U. constitutes an “optimal currency area” (it doesn’t) or whether a monetary union is workable without some form of political and banking union (it almost certainly isn’t). But now is the time for Merkel, as Europe’s de-facto leader, to acknowledge that monetary unification produced unintended consequences, many of them dire, and that helping Greece get back on its feet is part of the price that the E.U. must pay to move beyond this sorry episode.
That is not to say that Greece was blameless, or that Merkel should pretend it was. For years, governments in Athens misrepresented public finances, padded public payrolls, and borrowed recklessly. But, when the reckoning came, it was a terrible one, and the austerity policies that the E.U. and the International Monetary Fund imposed made things a lot worse. Indeed, to many young Greeks—and young people elsewhere in Europe—the E.U. is now synonymous with economic slumps and mass unemployment, rather than with Jean Monnet’s vision of postwar reconstruction, the European Convention on Human Rights, or the highways, waterworks, communications systems, and other pieces of public infrastructure that the E.U. helped finance through its regional-development funds.
That is a tragedy, and one that Merkel and her colleagues sorely need to address with flexibility and imagination. If the E.U. is viewed as a remote and punitive body, one that can’t adjust its workings for a member country where a quarter of the population is out of work, its prospects are grim.
Part of the solution is a technocratic one. A currency zone without a common government, if it is to survive, needs a powerful central bank to counter economic downturns and act as a lender of last resort. It also needs a banking union and at least some form of fiscal risk sharing. Since 2009, the E.U. has made some, although not enough, progress in many of these areas.
But fiddling with the operation of the eurozone isn’t enough. For Europe to return to the vision of shared prosperity on which it was founded, it needs to confront its debt crisis in a manner that offers all similarly afflicted countries—Ireland and Portugal, for example, as well as Greece—something more than the prospect of endless austerity. On Wednesday, when the reshuffled Greek government presents its creditors with a new plan, which will certainly include a call for debt relief, Merkel and her colleagues have an opportunity to embark on a new path.
The details can be haggled over going forward. As the I.M.F. pointed out last week, they will probably have to include extending the maturity of Greece’s debts, lengthening the period before initial repayments have to be made, and writing off some of the country’s obligations. At this point, though, the important thing is to concede the principle of debt relief, guarantee the flow of credit to Greek banks from the European Central Bank, and restore some stability and confidence.
If this is done, Greece will still face a tough future—one in which it will have to continue to reform its economy and pay its way. Even if it got another bailout, almost all of the money would be used to pay its creditors. At least, though, some hope would be restored, and the E.U. would be able to move forward, confident that its expressions of solidarity amount to more than words.
Over to you, Chancellor.
