Will the electoral victory of Greece’s left-wing party, Syriza, precipitate the eviction of Greece from the Euro (a prospect also known as “Grexit”)? Syriza’s young and charismatic leader, Alexis Tsipras, committed during his campaign to renegotiate the bailout program agreed with the so-called “troika” of the European Commission, the European Central Bank, and the IMF. He also promised to rehire laid-off government workers, to raise the minimum wage, and to increase government spending in order to subsidize electricity and health care. While Mr. Tsipras says he does not want Greece to leave the Euro, his country might be forced to do so if he insists on implementing the policies for which he was elected. Paradoxically, however, “Grexit” might be a good thing for the future of Europe.
The prospect of “Grexit” confirms that Euro members cannot have the best of two worlds: they cannot be part of a single currency and ignore its rules by overspending. France faced a similar problem in 1983. Its Socialist government, elected in 1981, had increased taxes and government spending, thus causing a massive flight of capital and three devaluations of the Franc. In light of the Franc’s free fall, France’s membership in the European Monetary System (EMS) was at risk. French President François Mitterrand had a choice between betraying his voters and betraying Europe. He chose the first option.
German Chancellor Helmut Kohl made a tough and courageous decision, too, when he accepted the idea of a single currency in 1991. With the fall of the Berlin Wall in 1989 and the reunification of Germany in 1990, France was in a panic. François Mauriac’s famous gibe about the division of Germany (“I’m so fond of Germany that I prefer two”) genuinely expressed France’s fear of its mighty neighbor and historical enemy. With the restoration of German sovereignty in 1949, France feared the rebirth of the German threat. This is why French statesmen like Jean Monnet and Robert Schuman conceived the idea of tying Germany, like Gulliver, to its neighbors. Hence did the European Coal and Steal Community (ECSC) come into being in 1951. Forty years later, François Mitterrand responded to German reunification with the idea of a European currency. The French tied Germany to Europe with a single market in 1951 and with a single currency in 1991.
The Euro, which emerged a decade later, was thus born out of French fear and of German guilt. It was not meant to encompass all of Europe – indeed, the British opted out from day one, and Sweden kept its currency after joining the EU in 1995. Not only can a country be an EU member without joining the Euro, but keeping countries within the Euro even when they break the rules might endanger the EU itself. Germany swallowed the pill of the Euro in 1991 to reassure France and to prove its European credentials, but the German taxpayer will not agree forever to subsidize countries that overspend and cook their books.
The financial crisis of 2008, which began in the United States as a mortgage default issue, created a sovereign debt crisis in Europe, with countries such as Greece unable to make payments on bonds. In Greece, the sovereign debt crisis was the result of irresponsible policies that included early retirement for government workers and excessive unemployment benefits. Greek politicians typically bought votes by squandering resources on social programs the country could not afford –not least because taxes were not rigorously collected.
German chancellor Angela Merkel is said to be of two minds about “Grexit.” More and more Germans are talking openly about leaving the Euro if the Greeks and other “Club Med” countries insist on defying the laws of economics. This trend is confirmed by the emergence, and recent electoral achievements, of “Alternative für Deutschland,” a German political party that calls for leaving the Euro (while staying in the EU). For most Germans, the idea that agreed rules of economic behavior should be flouted is even more corrosive to the future of the Euro than the idea of letting offenders leave the club. “Grexit” might also serve as a strong incentive to recalcitrant reformers. To be sure, “Grexit” would have a heavy economic price (hence Angela Merkel’s hesitation). But the political price of ruining Germany’s commitment to the Euro no longer justifies putting up with Greece’s antics.
Letting the Greeks revert to the Drachma will not spell the end of Europe. On the contrary: it might be the condition for preserving Germany’s goodwill and, therefore, the very future of the European Union.
Reprinted with author’s permission from i24 News