The alleged rescue of Greece was never entirely about saving Greece from the self-inflicted wounds that were about to destroy its economy and send the cursed lump of Aegean real estate hurtling out of the euro zone. It was also about setting an example, pour encourager les autres.
And so it will be with Britain as its voters contemplate bolting from the European Union in the June referendum.
Greece's three international rescues mired the country in a mountain of unsustainable debt and a crushing austerity program that has kept the economy's deep recession intact. The message to Italy, Spain, Portugal and the other EU weaklings was simple and brutal: Clean up your economic acts or you, too, will be robbed of your sovereignty, at best, or left to your own devices beyond the euro zone.
The threats worked, to some degree. Spain and Italy are out of recession and passing reforms to improve their competitiveness.
Which brings us to Britain. The conventional wisdom is that neither side – Britain or the EU shorn of Britain – would suffer greatly if Britain were to vote to leave (a scenario dubbed Brexit). Britain would negotiate a series of trade and access deals with the EU to keep its exporters happy, as Norway and Switzerland have done. The EU, which runs a fairly hefty goods trade surplus, if not services trade surplus, with Britain, would be motivated to cut Britain a sweet deal that would give it almost all of the benefits of EU membership without the island nation having to write the big membership cheques (in 2015, Britain's net contribution to the EU was about £8.5-billion or $16-billion).
One implausible theory suggests that the EU minus Britain would be slightly better off economically. It rests on the assumption that, with Britain out, most of the foreign direct investment that had gone to Britain (typically 20 per cent of the EU's total) would be diverted to the remaining EU states. Why build, say, a car plant in Britain if Britain lacked unfettered access to the EU's borderless market? Build it in France or Germany instead.
All of these theories are hopelessly romantic. Both sides would suffer greatly, both economically and politically, under Brexit.
Let's start with Britain. The pro-Brexit crowd, whose highest-profile cheerleader is London Mayor Boris Johnson, has been deluded into thinking that the EU would not take inspiration from the Greek crisis. But just as the EU was willing to punish Greece for bad behaviour, so it would penalize Britain. If the EU were to give Britain all of the benefits of EU membership with none of the costs, every other EU country would demand similar treatment. The notion of the EU as an economic and political union, with common goals and protections, would shatter.
To kill off the idea that exodus from the EU would be a snap for any country that dares to hit the "out" button, the EU is bound to hammer Britain on Brexit negotiations. The free movement of goods, services, labour and capital within the EU would end for Britain, a potentially serious blow, since seven of its top 10 trading partners, led by Germany, are in the EU. The negotiations would be nasty. Divorces are never pleasant.
The ugly truth is that there will be no winners in the Brexit vote, no matter which way it goes. If Britain waves goodbye to the EU, it is taking an enormous economic and political gamble that could easily go against it. Without Britain, which is more or less level with France as the EU's second biggest economy, the EU would be a vastly diminished economic and political force. Already, the EU struggles to develop a forceful and coherent presence in world diplomatic, economic, security and military affairs. Without Britain, it would struggle more.
But even if Britain opts to stay, the EU would suffer damage. British Prime Minister David Cameron last month negotiated a deal that meets his minimum conditions to endorse a "stay" vote. One would prevent EU measures from hurting the City of London, the name for Britain's financial sector. Another would include promises to deepen the single market and negotiate bilateral trade agreements with non-EU countries. Both are small victories for Britain. The big victory was negotiating an exemption from the EU treaties' existential commitment to an "ever-closer union among the peoples of Europe."
The exemption means Britain can drop out of ambitious integration projects, such as forming a banking union or creating an EU-wide security force. How could the EU become more integrated if its most influential member, after Germany, can ignore every integration effort? It can't. Even if Britain stays inside the EU, the EU will be weakened. If Britain leaves, it will be weakened more, and Britain could get hammered in the separation process. There is no pretty scenario here.
Eric Reguly