A deal that is costly both for Greece and Europe

13/7/2015

Germany’s tough terms may yet prove too much for the Greek people

In the early hours of Monday, Greece and the eurozone stepped back from the brink. Faced with the imminence of Grexit and all its uncertainties, they signed up to a plan that might shore up the crumbling Greek economy and open the door to another bailout deal.

The pact offers no respite from the agonising cycle of negotiation that has dominated the crisis. The proposal agreed to by Alexis Tsipras and the other eurozone leaders merely sets yet another deadline, along with the conditions Athens must meet to avert disaster. The Greek parliament and public will now have their say on the proposal, along with those in other eurozone states. Given the severity of the terms and the fissile state of public opinion, its acceptance cannot be assured.

Even if the deal succeeds in restoring some stability to the shattered Hellenic state, the experience of recent days has been a searing one — not just for Mr Tsipras but for the entire eurozone.

Germany’s approach has left deep scars, enforcing harsh terms on the hapless Greeks and exposing divisions with other more conciliatory voices such as France. Berlin’s rigid stance raises questions about the functioning of the eurozone and the compatibility of Greece’s dire situation with democracy. It prompts deeper concerns about the future of the EU project itself.

Mr Tsipras has been his own worst enemy. He needlessly threw away whatever goodwill Greece might have enjoyed, pursuing an erratic strategy of bluff and bluster as his country’s economy slid back into depression and its banks went into slow-motion collapse. By the time he changed his tune, most sympathy for Greece’s plight had gone.

Even so, the deal forced on the capitulating Greek prime minister is extraordinarily severe. The terms are less palatable than the ones available a fortnight ago, which the Greek people rejected in a referendum, and Mr Tsipras denounced as blackmail.

There is no let up in austerity and no clear language offering acquiescence to debt relief. Athens has just days to pass a raft of laws dictated in Brussels that cover everything from the regulation of bakeries to tax rises and fundamental reform of the Greek administration. The lenders have insisted on establishing a trust to hold assets with a value of up to €50bn that will be sold to pay for bank recapitalisation and to repay debt. The hated troika will not only return; it will take up unfettered residence to monitor the terms of the deal.

Germany and other eurozone nations claim this unpleasant medicine is essential because the Tsipras government cannot be trusted to keep its word. But by treating the Greeks so severely they raise fundamental questions about the purpose of the eurozone. At its root the single currency is a political project. Stripped of this founding vision, it risks becoming little more than a utilitarian fixed exchange rate regime in which the strong push around the weak.

Berlin may feel that it has won a victory by insisting on the rules. But its tough approach is causing strains at the heart of the EU, notably in relations with Paris and Rome.

Moreover, a bailout on the terms set out in Brussels risks turning the relationship with Greece into one akin to that between a colonial overlord and its vassal. The eurozone institutions are now assuming so much responsibility for the Greek economy that they will inevitably bear the political taint should the next bailout fail.

Given the catalogue of errors made by all sides, the deal on the table may be the best that can be hoped for. But the agonies involved in reaching it have done deep damage and even now only a brave soul would bet on its success.

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