Greece's Austerity Deal: Welcome to Power Politics in the Eurozone

"What is happening is that the age-old logic of power politics is undermining the European project of transnational integration on equal terms..."
 

Even as new dramas erupted in Greece’s parliament over the last two weeks, the country’s debt crisis was headed for a conclusion dictated by the ineluctable logic of power politics. Opposition parties provided the votes necessary to approve a new bailout by Greece’s foreign creditors despite a rebellion against the measure by a faction of the government’s own Syriza party. Under the leadership of Prime Minister Alexis Tsipras, parliamentarians have passed hundreds of pages of laws—many of which they were unable to read—in order to legislate economic reforms required by foreign officials, all to secure a bailout whose logic of austerity baffles many prominent economists.

Yet despite opposition from within Greece, across Europe, and around the world, a better deal is unlikely for the simple reason that the course of the crisis is prescribed not by policy but by power. German leaders, together with a coalition of hardline creditors, are doggedly pursuing their own rational political interests to the likely detriment of European solidarity. What’s more, they have been and will continue to be successful in this pursuit because the German economy is the largest and most productive on the continent—in other words, because Germany is the most powerful European state.

This is not a story about imperialism or German designs for world domination, nor does it turn on inflammatory stereotypes of puritanical northern Europeans or lazy southern ones. Instead, what is happening is that the age-old logic of power politics is undermining the European project of transnational integration on equal terms: powerful states are imposing their will on weak ones, albeit through finance, not arms.

As this reading of the Greek debt crisis makes clear, Europe must be liberated from the conflicts of power politics if it is to share a common currency successfully. However, the very events that have highlighted the need for institutional reform have likely put it firmly out of reach.

One for All?

Throughout the crisis, German officials have behaved in a way that exposes their own political interests and betrays the fundamental role power politics is playing in the fate of Europe. From the start of the euro crisis, they have professed a single-minded interest in the preservation of the euro area and the European Union. “If the euro fails, then Europe fails,” Chancellor Angela Merkel has declared. Her steely finance minister, Wolfgang Schäuble, has broadcast the same message. “It’s not just about Greece,” he said in July. “We need to make sure the basis of people’s trust in Europe is not completely destroyed. We are defending Europe.”

Yet for a country purportedly serving European interests, Germany settled on a counterproductive approach. In July, Berlin and its allies gave Greece a choice: either accept a severe regime of austerity and reform in exchange for a third bailout, or default on Greek bonds, likely prompting a collapse of Greek banks that would require the government to print its own currency and abandon the euro in order to keep its economy from imploding.

Neither option seemed designed with European interests in mind. If Athens rejected the creditors’ deal, it would have been printing drachmas in short order. Not only does that seem like an odd way to maintain European integrity, but the consequences of a “Grexit” would also have rippled across the rest of the euro area. Many economists feared that markets would then turn on other struggling southern European countries, raising their own borrowing costs and setting them on a path to follow Greece out of the common currency. In the best case, precipitating a Greek default risked endangering the European project.

If, on the other hand, Athens accepted the creditors’ deal—as it has—then the European project would still be seriously compromised. In this scenario, Greece is set to remain in the euro area, but on a basis that flouts its sovereignty and calls the future of European democracy into question. It is hard to overstate what Greece’s creditors, led by German negotiators, have achieved: they have forced the Greek government to contradict the Greek people. The Syriza party was elected specifically to ease the burden of austerity, and voters then reaffirmed its mandate by soundly rejecting the creditors’ bailout terms in the country’s July referendum. The government has now been compelled to accept these terms with few changes.

This invasion of sovereignty threatens to permanently embitter Greece to the European project and to alienate small states and political parties across the continent to boot. Given these consequences, European solidarity hardly seems to have been the driving interest of German politicians and policymakers.

Heads I Win, Tails You Lose:

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