Achim Hurrelmann is an associate professor of political science and director of the Institute of European, Russian and Eurasian Studies at Carleton University
After another weekend of frantic emergency summitry, European leaders have patched together a plan to avoid Greece's exit from the euro zone. It demands that Greece pass a number of economic reforms, going far beyond those rejected by its citizens in a referendum just a week ago. In exchange, euro-zone members have pledged short-term financing for the Greek government and banks, as well as the opening of negotiations on a third bailout package that could see Greece receiving more than €83-billion ($116.7-billion Canadian) in new loans.
While this plan still requires parliamentary approval in Greece and other euro-zone countries (including Germany), it represents the first substantial multilateral agreement reached between the euro zone and Greece's left-wing government, after almost six months of negotiations. For this reason, it is likely to be hailed as a success by European leaders and should elicit a positive reaction on financial markets. Yet, even if the deal is eventually ratified, its positive effects will be overshadowed by the lasting damage that the negotiations of the past six months have done to the euro zone, and to European integration more generally.
The first victim is the Greek economy. After five years of extremely painful austerity, it seemed in late 2014 that Greece was turning a corner. There were signs of growth and government revenue had started surpassing expenditure, if interest payments were disregarded. This success had come at huge social costs: GDP had collapsed by a quarter, wages had plummeted and unemployment had risen to more than 25 per cent. This is what propelled Prime Minister Alexis Tsipras and his Syriza party to power. Yet even though the new government passed few big-ticket spending measures, market uncertainty in the face of the untested anti-austerity government quickly pushed Greece back into a recession. The government's decision two weeks ago to break off talks with the euro zone and hold a referendum on austerity greatly exacerbated these effects, necessitating a closure of banks and the introduction of capital controls – measures whose economic costs, while hard to quantify at this point, will surely be substantial.
The second victim of the past six months has been democracy. Just one week ago, 61 per cent of the Greek population voted against further austerity. Now, regardless of the expressed will of the population, Greece is being asked to implement not just the austerity measures rejected in the referendum, but much more. To be sure, the referendum was an irresponsible political ploy. Mr. Tsipras's "austerity versus democracy" slogans appealed to populist instincts, never made much sense as a negotiation strategy and disregarded the rights of other euro zone states to make their own democratic decisions on granting Greece further loans. From the perspective of the creditor states, there is a compelling reason for why the new bailout package must be tied to stricter conditions than the much smaller extension of the previous package that was being debated before the referendum. More money, in their logic, requires more austerity. And yet, if one reflects on the developments of the past months, it is hard not to come to the conclusion that democracy in Greece – and perhaps other euro zone debtor states as well – has become meaningless.
The third and most troubling kind of damage that has been done to European integration is the deterioration of trust between the EU member states. References to trust were heard most loudly this weekend from the hawks among the euro zone creditor states – Germany, Finland, Slovakia and others – who justified their call for unprecedented limitations on Greek sovereignty with reference to Mr. Tsipras's unreliability, and the danger of him reneging on an eventual agreement. But by disregarding the referendum result, insisting on reform measures that were widely seen as humiliating, categorically ruling out a reduction to Greece's debt and openly flirting with the country's expulsion from the euro zone, Germany and its allies did at least as much damage to mutual trust – and to the idea of European solidarity – as Mr. Tsipras with his ill-advised referendum. Even if a bailout deal is eventually implemented, this does not bode well for the future of the EU, whose complicated decision making system depends entirely on the member-states' mutual goodwill and co-operation.