PS21 Insight: Eurozone clinches deal, serious strains remain


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  • Eurozone clinches last-minute deal with Greece
  • Shows commitment to currency bloc but process has revealed bitter divisions
  • Risk of Greek exit remains, reform is likely to prove troublesome

Greece clinched a last-minute deal with Eurozone nations on Monday, pledging a raft of reforms and spending cuts in return for ongoing financial support.

Below are comments from several contributors to The Project for Study of the 21st Century (PS21). Please credit PS21 in any quotes. If you wish to contact the speakers, please e-mail

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Sir Michael Leigh is Senior Advisor to the German Marshall Fund of the United States. He was Director General for Enlargement for the European Commission from 2006-11. From 2003-6 he was Deputy Director for European Commission External Relations. He is a member of the PS21 international advisory group.

Giulia Pastorella is an Italian political economist and Ph.D. candidate at the London School of economics.

Peter Apps is Executive Director of the Project for Study of the 21st Century.

With yet another deal, no one — neither the Greeks nor those in the core Eurozone — is quite yet willing to make the leap of taking Greece out of the euro. Sunday evening’s German-mandated demands that Greece sacrifice huge chunks of its sovereignty in financial decision-making, however, saw the process more polarised than at any point so far. 

Leigh: The continued readiness of both sides to seek a compromise rather than slam the door is encouraging. The result, though, is a muddle-through which Greece and the creditors will find hard to sell to their constituencies. The improvised series of finance ministers and summit meetings demonstrates the lack of a dependable system of Eurozone governance and the prevalence of short-term political thinking over sound economics.

Apps: At first glance, Sunday’s proposals seemed almost designed to make Greece choose to leave the euro of its own volition. For now, however, it hasn’t done so. Indeed, the proposals seem to have generated their own popular backlash in Europe and beyond. And now we have yet another last-minute deal.

For all the talk in Greece of “letting democracy into the system” with their referendum last weekend, the simple fact is that the democratic will of the German electorate and others in Central Europe is opposed to the bailout.

What we now have are fundamental divisions breaking into the open. The devil here is not the details; it is much larger than that.

Pastorella: Economic principles are not the driving criteria behind the nth round of negotiation. It is not about how much money Greece should be lent again, or how much of its debt could be written off. Or at least, not just that. Ideological reasons as well as national interests are the strong winds pushing the European boat towards an unknown and undetermined destination.

Ideological splits are not just between the hawks and the doves of fiscal policies. That would still count as an ‘economic’ divide. It is more between those countries that have been through austerity and show sympathy for Greece. And those who, having gone through the same experience, have taken a tougher stance: if we managed to reform and survive, surely you can – and should- do the same. Amongst the former group are Italy, Ireland, Spain and Portugal, while the latter include most CEE countries as well as the Nordics and other unusual suspects, such as Malta. Same facts, different conclusions. That explains why negotiations are so complex. If it were just a matter on numbers, technocrats could easily take care of it. But the technocrats are tied to the mast of the European vessel, muted like Draghi, who has not really intervened in the recent debate, while European leaders take turns at the helm.

Both sides need to offer more flexibility.

Leigh: Further crushing austerity measures, exacerbated by minute foreign supervision, will not lead Greece back to economic growth. Any sweetener in the form of partial debt rescheduling will do little to make the package digestible to Greeks who have just voted two to one in a referendum to reject less stringent measures.  Even if the Greek parliament endorses the new bail-out programme, rather than face the imminent collapse of the country’s economy, Greece may well go off track rather quickly. Greeks are unlikely to take ownership of the new reform programme if they feel that it has been imposed in extremis.

The dogma of fiscal consolidation, the narrative of saints and sinners, the rejection of financial transfers as an inherent part of any functioning currency union and maneuvering for domestic political advantage continue to distort the dialogue between Greece and its creditors. It is to be hoped, however, that the narrowly-averted risk of catastrophe will serve as a wake-up call to Greece and will persuade Eurozone leaders at last to give the currency union the tools it needs to function effectively.

The broader damage to the European project may still be serious and long lasting.

Apps: The euro is at the heart of the broader European project, even if it is currently by far the least successful part of it. At the end of the day, these structures were built at the end of the Second World War is an attempt to stop hostilities erupted in Europe again. The aim was simple — to tie the continent together economically in prosperity to make further war impossible.

The problem is that there have always been different visions of what that means. For the Greeks and others on the European periphery, it has always been about redistributing wealth from the rich central states and redistributing it in poorer countries and regions. Germany and other northern states, meanwhile, have always seen it as much more about encouraging those countries to be more responsible.

What Greece in particular did not join the euro to do was to cede its sovereignty to what they see as unreasonable German demands. The success of the hashtag #thisisacoup this weekend in protest against what many social media users saw as entirely undemocratic demands on the Greek government is a sign of serious reputational damage. With the British referendum on EU membership coming out next year, that could prove important there too.

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