*The EU has thrown Greece a 750 billion euro lifeline, and the message is clear: “hold on tight, we’ll get you out of there!” But is this really the right message to send to the rest of Europe? *
I’m not going to get into the complex financial issues surrounding how Greece got themselves into this mess; it suffices to say that they borrowed a lot of money, bought a new house and a shiny car, and then realised they couldn’t afford to pay the bank back.
Instead, I will look at how this affair has shown the future direction of the European Union and set a new precedent for EU economic policy.
A national bailout to rescue some national banks is one thing, an understandable move made by many countries (although not without its critics). But now the EU is doing the same, but on a much larger scale, bailing out an entire country’s financial system. Don’t be mistaken; nothing quite like this has ever been done before. This turn of events offers two revelations about the state of the EU.
Firstly, that the Eurozone has become much greater than the sum of its parts. It has become acutely apparent that these 16 countries will not only share success, but will also suffer each other’s financial difficulties as if they were their own. The European Central Bank along with the European Commission are now acting like the EU Treasury of the Eurozone, going far further than any treaty ever allowed. Many pundits claimed that only a “United States of Europe” would be able so save Greece and, subsequently, the euro. It appears that this is what has happened.
Secondly, because of the decision to bailout Greece, the Eurozone has seemingly abandoned the principles of the ‘free market’ on which it was based. Make no mistake, the choice for Europe was to either bailout Greece or scrap the single currency (a political non-option). Previously, if a country managed to bankrupt itself in the way that Greece has, the market would enact its punishment, and other high-deficit nations (Ireland, Spain and Italy, to name a few) would take drastic action to reign in their expenditure. In the way that the EU has rescued Greece, they have both failed to protect the principles of the Eurozone and, ultimately, set themselves up for future bailouts. Now, rather than engaging in the required austerity measures needed (cuts to public expenditure, cutting the budget deficit), those with deficits will be able to ignore the problem, safe in the knowledge that the EU is there to bail them out if they need it.
So these are the two revelations that we can take from the last week of events: the Eurozone has now gone far beyond a mere economic union, both in principle and in practice, and that this probably won’t be the last time a country in financial dire straits is going to be bailed out by EU money.
The underlying problem within the EU at the moment is that the principles that underline the Eurozone are contradictory. On one hand, there is the ideal of an elite Europe of strong, stable economies sharing a single currency to enable better trading opportunities between competitive markets. And on the other hand, there is the notion of a catch-all Europe: one in which everyone is welcome, even those who are not economically up to the challenge.
Greece, for all its attributes, fits into the latter of the two groups, and therein lies the real issue about the future of Europe. Can the European Central Bank bail out more Eurozone countries at the taxpayers expense? The answer is probably yes. Will the European Central Bank have to bail out more Eurozone countries? Again, the answer seems to be yes.