The latest Greek tragedy is not something Europe cannot handle. The question is how it goes about it? Athens will need help from outside to fill the fiscal hole it has dug itself into, it is simply too hard to achieve the amount of adjustment that is implied by official projections in the midst of weak growth and rising debt costs. But the laws that created the Eurozone explicitly forbid member-States from bailing out friends in need.
A tiny portion of southern Europe’s sovereign debt is held outside the euro area: Greece, Spain and Portugal combined owe as little as euro 130 billion to non-Europeans. European banks can take care of the crisis without breaking into a sweat, especially when most lending on the continent passes through them. The risk of the contagion spreading within the Eurozone is also limited because, overall, the bloc manages its debt well.
But if Brussels were to throw the Greeks a lifeline now, it must, in the interests of taxpayers in the rest of the Eurozone, get a say in how Greece handles its finances, a line it has no mandate to cross. Again, any bailout that lets countries in violation of the European Union’s (EU) rules avoid the consequences of loose fiscal policies will raise concerns over the long-term viability of the euro. On the other hand, no assistance at all will lead to a sovereign default by a Eurozone member, and a harder knock for the image of the euro. Hobson’s choice for a currency that is a pretender to the dollar’s reserve status. The Greeks are understandably furious at becoming laboratory animals in the battle between the idea of Europe and the markets. EU institutions must take some of the blame for the mess as a club member brazenly massaged tax and expenditure numbers without anyone noticing.
Solutions exist outside the Eurozone framework though. A country at risk of a sovereign default can go to the International Monetary Fund (IMF) for emergency assistance, and rebuild its finances under its supervision. But the EU would have to shed its inhibitions before taking such help. Eurosceptics would argue it is better to face the ignominy of approaching the IMF than being nudged into a closer union by a crisis. Torchbearers for Europe, on the other hand, find themselves hamstrung by their concept of shared sovereignty to come to the aid of Greece. One thing is for sure. Once the dust settles over the Greek episode, Europe will have to look at itself in a new perspective. The path to a common EU foreign policy has been a rocky one, now even economic integration is straining the bloc.