The week that saw Greece spared from the bum's rush out of the euro was the same week that the European integration project, the greatest feat of European geo-economic and political engineering since the Second World War, finally broke down.
The trigger was easy to identify. It came in the heat of the creditors' acrimonious debate over how, or even whether, to save Greece, when German Finance Minister Wolfgang Schaeuble introduced a euro-exit mechanism. Greece, he said, should be allowed a temporary exit from the common currency.
On Thursday, even as the Greek government and the Greek banks were being pumped up with fresh emergency loans, and even as European Central Bank president Mario Draghi was casting himself as the guardian of the euro, Mr. Schaeuble was at it again. He said that Greece's departure from the euro zone "could perhaps be a better way" for Greece to deal with its financial and economic crisis. He noted that a debt cut, which Greece desperately needs, "is incompatible with membership union."
In essence, he was inviting Greece to hit the road, default on its debt, reprint the drachma, get its economy in order and in, say, five years, apply again for euro membership, which may or may not be granted, depending on the mood of the German finance minister at the time.
The concept of temporary Grexit marks a sea change in the way Europeans think about the common currency. If Germany, the most powerful country in Europe, the effective leader of the euro zone and alleged champion of European integration, no longer thinks the euro is irreversible, the currency and the freedoms that go with it are in severe trouble.
Since the introduction of the euro as an accounting currency in 1999, and as banknotes and coins in 2002, the euro has gone in only one direction – outward, embracing 19 of the European Union's 28 countries. No country has left the euro and the concept was frankly unimaginable until Greece, about to enter its third bailout, became the poster child of the debt crisis in 2010 and tested the patience of Mr. Schaeuble and German Chancellor Angela Merkel.
It just became imaginable, doubly so now that Germany keeps raising it as an option worth pursuing. The problem is that the exit threat could be abused, flinging the door wide open to blackmail. The next country in crisis (and there is no shortage of aspiring candidates, among them Spain, Portugal and Italy) could use the exit threat as a bargaining tool: Give us what we want or we're out of here.
Greece was not big enough to credibly use the exit threat as leverage, all the more so since most Greeks insist they don't want to see the drachma's return. But if Italy, the euro zone's third-largest economy, were to threaten to leave, the market, economic and political chaos could be catastrophic. And if Italy did leave, the euro zone project would be stone-cold dead.
The blackmail could come from the other side, too, as it did in the Greek case. If any country in crisis were to resist its creditors' demands, the exit card could be thrown on the table. In reality, Germany is the only country willing to play that card – France and Italy, backed by the ECB, fought Mr. Schaeuble's kick-the-Greeks-out attempt. The upshot is that any country with the nerve to challenge Germany risks being shown the door.
A euro zone with an exit door would be a dream come true for the currency speculators, as was the old exchange-rate mechanism (ERM), the predecessor to the euro. The ERM, born in 1979, was a semi-pegged system designed to create currency stability for the countries that intended to share a currency. The narrow trading band more or less worked until 1990, when Britain signed up. Two years later, sterling came under attack from the currency speculators, including George Soros. After spending billions of pounds trying to keep the pound within the trading band, Britain threw in the towel and crashed out of the ERM in what became known as Black Wednesday. Mr. Soros alone made £1-billion ($2-billion) on his bet. Italy was another ERM victim.
A euro with a built-in exit mechanism would be prone to similar attacks from speculators, who would come armed with the knowledge that the euro can be broken.
Sadly, there is a fair chance that Greece, with the approval of Germany, is still set to wave goodbye to the euro. The conditions placed on Greece to qualify for its new bailout, worth €86-billion ($121.1-billion) , are brutal. They range from a phenomenally aggressive privatization program to semi-automatic spending cuts if budget targets are not met. The creditors have made it clear that failure to meet the conditions would be Greece's fault, not the fault of the creditors for having designed a bailout program that is overly harsh for a demoralized, jobless country in deep recession.
Europhiles should worry. Greece may have received a temporary reprieve, but it is also being set up for failure. When the pain becomes unbearable, Greece may well choose to exit the euro and Mr. Schaeuble wouldn't stand in its way. Yanis Varoufakis, Greece's ex-finance minister, recently compared the euro zone to the Roach Motel – you can check in, but you can't check out. Now you can.