Greece Should Just Quit
18 JUL 13, 2015 5:05 PM EDT
By The Editors ~ Bloomberg
Does Greece belong in the euro area? This fundamental question has divided Europe's governments for months, and still does. The deal just announced only pretends to resolve their disagreement. That's why it won't work.
Enough is enough: Greece should leave the euro system.
The terms forced on Prime Minister Alexis Tsipras last weekend have little chance of being accepted, carried out and sustained by this Greek government or its successors. Greece's parliament may accept them this week because it thinks the alternative is worse -- and in the short term, that may be true. In the long term, a deal imposed under extreme duress, and bitterly resented by most Greeks, won't succeed.
Greece's Financial Odyssey
Not long ago, a better outcome was imaginable. It would have required compromise on both sides. Greece would have recognized its need to undertake far-reaching economic reforms and to rebuild trust with its creditors. Europe would have responded with fresh, conditional assistance -- sufficient to support the Greek economy through a painful transition.
Such a compact is no longer possible. Trust has collapsed to such a point that Greece is being told it must become an EU colony, not a sovereign state. It is being forced into a deal it will resent for years, and to which it will feel no sense of obligation. Under these circumstances, leaving is the best available choice.
The current deal had to split the difference between Europe's divided leaders. France and others want Greece to stay in the euro system; Germany and its supporters don't. The upshot is that Greece must agree to much stricter terms than were previously offered, pass laws to implement far-reaching policy changes within three days, and place a huge stock of assets marked for privatization under EU supervision; then, and only then, will Germany and other euro zone governments ask their legislators for permission to start discussing a new bailout program.
This approach makes it theoretically possible for Greece to remain in the euro system, but practically extremely difficult. The terms are so severe that they might well be beyond Tsipras's power to deliver. One suspects that for Germany and its supporters, this is the point.
Papering over the disagreement between those who want Greece to remain in the euro zone and those who don't -- hence failing to decide the very purpose of the strategy -- further prolongs the agony and adds to the costs. The risk that it will poison the whole European project, if it hasn't already, grows by the day.
Given Tsipras's history of provocation and evasion, and Greece's history of fiscal fraud and incompetence, his belated yes last week to the creditors' expired offer wasn't enough by itself. It wasn't unreasonable of the creditors to ask for trust-building measures -- such as passing a major piece of legislation (on value-added tax, say) at once as a token of good faith.
But demanding instant passage of an enormous raft of measures, many of them only loosely connected to fiscal stability, as the price for the possibility of talks on a new program, gives every appearance of being calculated to humiliate -- which is certainly how it will be seen in Greece.
The text of the agreement starts by affirming that, when it comes to policy commitments, "ownership by the Greek authorities is key." Indeed it is. Ultimately, that's why this deal cannot work.
Whatever happens in the next few weeks, Greece may still end up leaving the euro system. Exit now will be painful, to be sure. The risks to the rest of Europe aren't small. But Greece will at least be in command of its own future, with nobody else to blame for its setbacks. The sooner that happens, the better.
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