So Antigone had a part in this tragedy too. That's Antigone Loudiadis of Goldman Sachs, who arranged a complex currency swap deal that helped Greece conceal the scale of its debt as the country snuck into the euro zone. Pity Greece didn't consult someone as wise as Socrates; and I don't mean Jose Socrates, the Portuguese Prime Minister, whose own country the gods - that is, bond markets - are also eyeing leerily.
Joking apart, we need to recognize this is not just the first great test of the euro zone but also a defining moment for the whole project of a European Union. Since this is Europe, not Apollo 13, failure is definitely an option. More likely, however, is a muddling through, leaving the old and demographically aging continent even more preoccupied with its own internal problems. And the world will not wait while Europeans spend another decade navel-gazing. Call me Cassandra, if you will, but that's how I see it.
No special gift of prophecy was needed to foresee the dilemmas that now face the euro zone. They were extensively debated before it was launched. I wrote in 1998 that monetary union was "an unprecedented, high-risk gamble," and argued that it was the wrong priority for Europe at that time. Subsequently, I was lulled into a false sense of security by the euro's apparent success, and by the practical and symbolic pleasures of travelling around the continent with just one currency in my pocket. Now we have the predicted difficulties. As George Soros observes, a "fully fledged" currency needs not just a central bank but also a treasury. It requires a degree of fiscal as well as monetary discipline, linked with the capacity to make fiscal transfers to suffering areas (complemented by labour mobility from those areas), as you have in a country like the United States or the United Kingdom.
To survive and prosper, a European monetary union must develop at least a stronger element of economic union, and that in turn requires a stronger element of political union. Which, by the way, was one of the main motives for some of the chief political architects of what was then deliberately called "economic and monetary union," including François Mitterrand and Helmut Kohl. This was not just, as is often said, Europe putting the (monetary) cart before the (political) horse. It was an attempt to use the cart to bring on the horse. It was the last big fling of the so-called "functionalist" approach, by which you build a politically integrated Europe through economic integration. Broadly speaking, that worked for half a century, from the 1950s to the 1990s; but in this case, it has not.
By its mendacious and self-harming profligacy, Greece has precipitated the crunch. Greece is unique, even among the PIIGS (Portugal, Italy, Ireland, Greece, Spain), in its combination of massive deficit (an estimated 12.7 per cent of GDP last year) and massive debt (some 125 per cent of GDP and rising). It has not only lived beyond its means; it has used its years in the euro zone to become even less competitive.
Yesterday, the country was hit by the second general strike in two weeks, and we ain't seen nothing yet. Greece has promised its euro zone allies to get its deficit down from 12.7 per cent to 8.7 per cent this year. Oh yes, and pigs can fly. Even if the Greeks let their government do the right thing, such deep cuts, as well as structural reforms, can make things worse before they get better. Meanwhile, it seems the Greek government needs to borrow about €55-billion this year, up to half of it within the next three months. What if the gods (bond markets) grow angry and decline to play?
Well, that third act has not been written. Anything could happen. But my guess is this: through gritted teeth, Germany will agree to some form of euro zone bailout. However, it will only support the minimum needed to placate the gods, and only with the most astringent, Creon-like conditions being imposed on Greece. It is an important but ultimately secondary question whether this help comes in the form of bilateral loans, loans from the European Investment Bank, purchases of Greek government debt, EU spending transfers, jointly issued eurobonds or any of the other mechanisms suggested. EU leaders will deny that this is a bailout and everyone will know that it is a bailout.
Both Greeks and Germans will then be furious. One well-placed diplomatic observer in Athens suggested to me that, as part of the European supervision of Greece's fiscal discipline, "there'll be a German under every desk." Just don't mention the war. Except Greece's deputy prime minister, Theodoros Pangalos, already has. Recalling the Nazi occupation, he said this week: "They took away the gold that was in the Bank of Greece, they took away Greek money, and they never gave it back. This is an issue that has to be faced some time in the future."
To which furious Germans will reply: "They took away our d-mark, and nobody asked us if we wanted to give it up. We were assured, in solemn treaties and rulings of our Constitutional Court, that we'd never have to bail anyone out. We took 10 years of painful reform to make ourselves competitive again, while those PIIGS lived high on the hog. Now we're being asked to work till age 67 so the Greeks can retire at 63." And so on.
Euro zone Europeans are grown-up enough to get over this, but it will take a large toll of effort, anger and internal strains. In the long run, the crisis might even make the euro zone a little stronger, adding an element of what is carefully called "economic governance." In the meantime, European economic growth is limping while Asians forge ahead. The always over-ambitious goal of the 2000 Lisbon Agenda, to make Europe the world's most competitive knowledge-based economy by 2010, looks ridiculous now, in 2010. And Europe's economic and political weakness compound each other.
Behind the monetary lurks the fiscal; behind the fiscal, the economic; behind the economic, the political; and behind the political, the historical. The deepest reality underlying this crisis is that the personal experiences and memories that have pushed European integration ahead for 65 years, since 1945, are losing their force. The personal memory of war, occupation, humiliation, European barbarism; fear of Germany, including Germany's fear of itself; the Soviet threat, the Cold War, the "return to Europe" as a guarantee of hard-won freedom; the hope of restored European greatness. These were massive biographical motivators that drove people like François Mitterrand and Helmut Kohl even unto the euro. Can Europeans go on building Europe without such profound motivators? Are there new ones in sight?
Timothy Garton Ash is professor of European studies at Oxford University.