The Eurocrats always thought big. In 1992 German Chancellor Helmut Kohl predicted “creation of what the founding fathers of modern Europe dreamed of after the war, the United States of Europe.” The Eurocrats drafted a constitution, only to be defeated by voters in both France and the Netherlands. So the Eurocrats turned the document into a treaty, which required a popular vote only in Ireland. Voters there said no, so Brussels insisted on a second vote—which went the “correct” way. As a result, in 2009 the EU added powers, a foreign minister of sorts, and a third “president.” It was a bit less than a new Weltmacht, a European superstate ready to counterbalance America and China. Nevertheless, the Eurocrats thought they had answered Henry Kissinger’s sarcastic request for Europe’s phone number.
The Eurozone was created in 1999. The more thoughtful Eurocrats realized that establishing a monetary union without joining fiscal policy created dangerous incentives for irresponsible fiscal behavior. However, this flaw was seen as a benefit, since it would offer an additional argument for political integration. It wouldn’t matter if people didn’t want a truly united Europe. They would have to accept one to avoid financial disaster.
Contrary to reputation, Greeks work harder—or at least longer—than most of their European neighbors. However, they like to retire a lot earlier. And they have created one of the most corrupt, least efficient, most sclerotic, least open economies on the continent. The anti-American socialist Andreas Papandreou, who dominated Greek politics in the 1970s and 1980s, essentially spent every drachma Greece had and more. The nominal conservatives, like American Republicans, were little better. For two decades the Greek government averaged a deficit of seven percent of GDP.
When Greece adopted the Euro in 2001 everyone knew it was lying about its budget numbers. But no one cared. After all, the French and Germans had violated economic rules with no consequence. And the Eurozone was as much a political as economic union, with economic failure supposed to propel political success. What could possibly go wrong?
Athens borrowed at German interest rates but spent at Greek speed. With a fixed exchange rate relatively high-cost Greeks could not compete with relatively low-cost Germans. Someone finally noticed what was going on and realized that Athens probably couldn’t cover its debts. All sorts of riotous fun ensued.
The Greeks didn’t want to pay. The French didn’t want their banks to collapse. The Germans wanted to enforce the rules. The Eurocrats wanted a more complete political union. The Finns didn’t want to pay for the Greeks. The Spanish really didn’t want to pay for the Greeks. The Greeks wanted to stay in the European Union. The Europeans readied for a possible Greek Exit (“Grexit”) from the Eurozone. Everyone blamed everyone else.
There were numerous villains. The Eurocrats knowingly created a potentially unstable monetary union without a fiscal union. The Greek people wanted the good life without paying for it. The Greek political establishment found someone else to pay for it, while profiting mightily along the way. Banks and governments lent money to the Greeks at near-German interest rates. The French and German governments used their taxpayers’ money to bail out their banks in the name of helping the Greeks. The Europeans seemed almost as reluctant to promote growth-inducing reforms as did the Greeks to adopt them. The International Monetary Fund broke its own rules to back two unsustainable Greek bailouts. The European Central Bank abandoned fiscal responsibility to subsidize heavily indebted states. Athens imagined that a policy of more government spending, taxing, and regulating would generate economic prosperity and threatening national economic suicide would fill the Greek treasury.
Finally, Chancellor Merkel continued to mortgage the future of her nation and continent to advance the European Project. As she earlier explained: “We have a common currency, but no common political and economic union. And this is exactly what we must change. To achieve this—therein lies the opportunity of the crisis.”
What an opportunity!
The bailout of 2010 was followed by another in 2012. Greek debt rose while the Greek economy shrank and unemployment rose. The established political parties imploded. The economy finally started to grow last year. But it was too late. Greek voters didn’t like having to budget like Germans and wanted a return to the good times. In January, Syriza won a near majority promising to reduce debts and increase benefits. The new ministers cheerfully vilified Greece’s creditors, even employing Nazi imagery against the Germans.
With the second bailout officially expiring at the end of June, the continent turned squabbling into a fine art. Syriza did what it could to squander what little goodwill it had even with left-wing regimes, asking for money while dismantling previous reforms. The so-called Troika—European Commission, European Central Bank, and International Monetary Fund—asked for more reforms in return for money. France emphasized solidarity with the Greeks while the Baltic States suggested that the Greeks sacrifice as their peoples had. Germany’s leaders divided, with Finance Minister Wolfgang Schaeuble wanting to defenestrate Athens from the Eurozone and Germany determined to hold it the monetary union together.
After negotiations broke down the ECB shut off the credit line for Greece’s banks, bringing the economy to the brink of disaster. When Greece’s Prime Minister Alexis Tsipras found himself stuck between his promises to reduce Greece’s debt and stay in the Eurozone, he called for a referendum. More than 61 percent of Greeks voted against more austerity while assuming Europe would come around to paying for the benefits they’d come to expect. When the Europeans still said no, Tsipras capitulated, agreeing to a new bailout with even tougher conditions.
Now everyone in Europe hates everyone. Most of the other 18 Eurozone members demanded tougher conditions on Greece. France and Germany broke their little entente over how to treat Athens. The Greek people were betrayed by another government. For the first time Merkel and Schaeuble publicly disagreed over Greece. The IMF broke with the ECB and European Commission. Greece’s Syriza party risked collapse as more than half of the central committee denounced the newest bailout as “humiliating and destructive for the Greek people.” Across Europe the horrified Left realized that European political centralization now meant austerity topped redistribution.
Most important, the Eurocrats again proved that the desires of the people of Europe don’t matter. Czech President Vaclav Klaus previously spoke of the EU’s “democratic deficit.” The European people long have been an impediment to the European Project. Throughout the Euro crisis the Eurocrats routinely intoned “more Europe,” but voters increasingly are choosing less Europe. They have been backing populist, radical, nationalist, and Euroskeptic parties in both domestic and European elections. Some of those parties have entered government. In Great Britain much of the current ruling party would like to leave the EU and the government is planning to hold a referendum on Britain’s membership.
Even if the third bailout is implemented, the latest episode of “extend and pretend” seems doomed to fail. The European Commission admitted that necessary was “a far-reaching and credible reform program, very strong ownership of the Greek authorities for such a program.” Yet Tsipras denounced the agreement while asking his parliament to approve it and indicated his commitment to protect the Greek people from its impact. Greece’s debt will hit 200 percent of GDP and under the most realistic estimates won’t fall below 170 percent of GDP for years. Athens will never be able to repay the debt mountain. Another Greek crisis is coming. And a Grexit again will loom.
What of the European Project?
The European Union looks impressive but remains hollow. It exalts process over substance. Three presidents struggle for authority and attention. The European Commission has no popular legitimacy. The European Parliament is elected but most people use their vote as a protest against their home government. No one other than the Eurocratic elite believes in the EU. And no one would fight for Brussels, not even the Belgians, who have barely held their own nation together.
The Eurozone debacle may be only the start. No longer is it enough for Eurocrats to chant “more Europe” as a panacea for the continent’s problems. The European people, about whom the European Project was supposed to be about, increasingly appear to have had just about as much Europe as they can stand. In the future the debate on the continent may increasingly be about how far and fast to roll back “Europe.”
