Eurofudge: Surprisingly Good When Enjoyed in Moderation Now and Then
Dean Baker stepped forward yesterday to defend German Finance Minister Wolfgang Schäuble’s suggestion that Greece make a temporary exit from the euro zone, (Wolfgang Schäuble, the Hero of the Greek Austerity Crisis?). Paul Krugman has also made arguments along similar lines pointing out that a Greek departure from the euro zone might be better for the welfare of the Greek public (after an initially difficult adjustment period). Krugman adds that as it stands now the euro zone is deeply flawed and is an economic drag on its neighbors.
Krugman’s observations that the euro project is flawed are indisputable, and suggest that irrespective of whether Greece remains in the euro zone or not, if the euro is to be maintained there will need to be institutional and policy changes to address these shortcomings. That is, as European leaders have stated, they will move forward with their intention to accelerate European integration.
This suggests that the point I made in a previous post holds: those concerned with the social and environmental aspects of European integration will need to work together to monitor and influence its direction. And working cooperatively across borders is especially important because at times governments have used opaque multilateral institutions to evade democratic accountability.
The flaws in the euro zone also suggest that if the German government wishes the European project to continue to be viable, it will need to show considerably more flexibility and willingness to compromise over the next several years on a set of issues that negatively impact Greece, and in fact, negatively impact all of its smaller neighbors. Germany’s deeply felt fears arising from its painful experiences from excesses related to fiscal and monetary policy are understandable. But Germany must come to terms with the need for compromise if it is to play a leadership role. A good place to start may be with some of the more disruptive or harsher aspects of the bailout’s prior action requirements.
Turning to Dean Baker’s piece, he argues that Schäuble may have been sincere in his argument that a temporary departure from the euro zone would be the best path forward for Greece. Schäuble may very well have been sincere. At the same time, Schäuble may also have been a longtime proponent of ‘variable geometry,’ or moving ahead with the integration of a set of core European countries, while leaving out those perceived as weaker members, such as Greece. This is a controversial approach to integration that is not unanimously shared by other members of the euro zone.
In any case, what I do know is that on July 14, Schäuble was asked about the temporary exit proposal by Reuters and he replied, “There are many people, including in the federal [German] government, who are quite convinced that in the interests of Greece and the Greek people what we wrote down would have been much the better solution.”
A Grexit may be in the interests of Greece and the Greek people, but it is for Greek voters themselves to determine this. It is clear the Greek government opposes an exit, and appears to be acting in good faith reflecting what Greek voters value despite the bailout’s harsh conditions. Greek Prime Minister Tsipras came to power with a dual mandate: to ease bailout conditions and to keep Greece in the euro zone. The wisdom of some of the actions Tsipras has taken may be called into question, but nothing he has done suggests to me that he hasn’t been deeply cognizant of both his conflicting mandates and fought hard to deliver on both.
Polling data shows that the “No” in the referendum on the bailout conditions came because (rightly or wrongly) the Greek public was told and believed it would not lead to a euro exit. And remaining in the euro continues to appear to be something that the Greek population supports, despite what external observers might advise. Tsipras alluded to this in a statement yesterday to parliament in a response to dissenters within his own Syriza party:
“Until today I have seen reactions, I have read heroic statements, but I have heard no alternative proposal to address the blackmailing dilemma of July 12th.
If some believe that the alternative Leftist plan is the Schaeuble plan, [or] the seizure of the stock of banknotes of the ECB, or to give pensioners IOUs papers instead of pensions, they should go out to the Greek people and explain it to them.”
If the European integration process is to be successful, it will require years of patience, finesse and dialogue among its member governments, and between governments and the public. Governments should not take for granted and so easily cast aside the Greek public with its clear enthusiasm for the European project. They should also consider flexibility in interpreting prior actions. The spectacle of the Greek population suffering from harsh bailout conditions can only increase public skepticism and fuel a loss of confidence that the European integration project will greatly need over the long term to succeed.