French President Francois Hollande (L) welcomes German Chancellor Angela Merkel before talks and a dinner at the Elysee Palace in Paris, France, July 6, 2015. REUTERS/Philippe WojazerPHILIPPE WOJAZER/Reuters
A week ago, Greeks voted in a referendum and gave their government a mandate to negotiate a better deal. A week later, an agreement has been reached with Greece's euro zone partners – and it's actually worse than the status quo. What's more, the deal reached on Monday morning, after a marathon all-night negotiation session, isn't really a deal at all. It's a total capitulation.
This weekend's negotiations didn't conclude with a quid pro quo. Greek Prime Minister Alexis Tsipras was essentially told to accept an ultimatum or be kicked out of the euro zone. He had right on his side, but no might, so he raised the white flag.
The common currency was supposed to be unbreakable, and negotiations were supposed to be about preventing the calamity of Grexit. But Mr. Tsipras, who repeatedly said he had no interest in leaving the euro, found himself threatened with expulsion. This may be the most remarkable and troubling development of the past weekend. The euro zone, it turns out, is not really a currency union. Its strongest member, Germany, can threaten to remove its use and protections from its weaker members. If their fiscal policies displease Berlin, it can send their economies into chaos. The loss of euro zone members was until recently a danger that European politicians wanted to avoid at all costs; it now has been turned into a not-to-be-missed opportunity for blackmail.
Greece is signing on to an extra-large helping of the status quo – including more spending cuts and more tax increases – in return for essentially nothing, other than a promise to begin negotiations on a "bailout." That so-called bailout will not be a life preserver. It looks more like a lead anvil. The package is not about reviving the Greek economy; Greece will not get grants or loan writedowns. Instead, it's about saddling the country with new debts to repay the old debts.
It looks like a complete victory for Germany, for Chancellor Angela Merkel and for Finance Minister Wolfgang Schaeuble. Their antagonists have surrendered, and Greece's sympathizers, led by the French government, remained mute and decided that collaboration with Germany was the best approach. In the long run, the economic destruction of Greece may serve as the foundation for a more unified Europe, led by Germany. Or it may mark the moment when Europe's long move to greater integration started to come undone.
Greece's human catastrophe – 25-per-cent unemployment, a recession that has gone on for the better part of a decade and an economy that has shrunk by a quarter in that time – should have served as a wake-up call to the European establishment that the status quo isn't working, that austerity is impoverishing Southern Europe and that a common currency run for the benefit of Germany is hamstringing much of the rest of the continent. At least half the continent, led by Italy and Spain, is suffering from policies that have kept the continent from climbing out of the recession. But the debt agreement that Mr. Tsipras signed on to Monday morning tells another story. He accepted the German version of events, which is now accepted by most European governments and voters: It's all Greece's fault.
Greece came to its European partners with a practical problem. It had more debt than it could repay, and the more it cut spending and raised taxes to service the debt, the more its economy contracted. In the reality-based community, this is basic economics. It's just arithmetic. It's not possible for Greece to repay its huge debts by further shrinking its economy. It's not possible for an economy suffering from a Great Depression-sized contraction to return to growth by further cutting government spending and raising taxes, particularly when the point of the spending cuts and tax increases is not to inject money into the moribund Greek economy but to raise euros to ship off to Frankfurt and Brussels in repayment of debts.
But Monday's Greek debt agreement does not recognize that reality. It says that there are "serious concerns regarding the sustainability of Greek debt." It puts the blame for this on Greece, which it accuses of having failed to try hard enough. And the agreement promises that in the future, when Greek cuts lead to lower economic growth and Greece therefore misses debt reduction targets, then additional rounds of "quasi-automatic spending cuts" will be imposed by the euro zone. If Greece doesn't dig fast enough, Europe will send in an overseer to supervise the shovelling.
The entire Greek situation isn't sustainable. And a situation that isn't sustainable will, eventually, no longer be sustained. At some point, something is going to give. For seven years, it has been Greek governments – and European countries from Ireland to Portugal to Spain – that have buckled down and cried uncle. All of them are in worse shape for it. It has left Europe in a bad way. Germany has its Greek victory; sooner or later, it is likely to prove pyrrhic.