Renewed uncertainty over the fate of Greece comes more than five years after its sudden descent into fiscal meltdown sent shockwaves around the world.
For all the turmoil since, in question still is the extent to which other countries in the euro zone are prepared to provide aid to Greece and the obligations it is required to undertake in return.
Both politically and financially the situation is heavily charged. Yet this remains, in essence, a debtor-creditor discussion between a bedraggled borrower and a lender of last resort. Leave aside for a moment the drama since Alexis Tsipras’s electoral triumph three weeks ago and the issues under discussion are not a whole lot different from the bargaining that went on with his predecessors Antonis Samaras and George Papandreou.
Impatience on all sides is more intense than ever, however. Although hardship in Greece is plain to see, it is only the most acute exemplar of the economic crisis still raging across large tracts of the zone.
At a summit in Brussels on Thursday, European Union leaders chose not to delve into the febrile intricacies of the Greek debacle and left it to finance ministers to plot a way through the swamp.
Still, European Commission chief Jean-Claude Juncker presented the leaders with an “analytical note” on the implications of the wider crisis in the euro zone and the “next steps” needed to reinforce the foundations of the single currency.
Painful example
The document presents more questions than answers, although the painful example of Greece illustrates just how difficult it is to achieve coherence in a 19-country currency union serving some 330 million people.
The note – co-written with institutional leaders Donald Tusk, Jeroen Dijsselbloem and Mario Draghi – runs only to eight pages but it is clear enough. The legacy of “imbalances” accumulated since the very outset of the currency is seen in soaring unemployment and significantly increased public and private debt.
Incomplete monetary union
The document says the euro area “has not recovered from the crisis in the same way as the US”, saying this suggests an incomplete monetary union adjusts much slower than one with a more complete setup. In saying that, however, the questions raised in a general sense seem all the more challenging when seen through the prism of Greece.
They are as follows. How can sound fiscal and economic positions be ensured in all euro member states? To what extent can the framework rely or strong rules? Are strong common institutions also required? How could private risk-sharing through financial markets be enhanced to ensure better absorption of risks? Is a further risk-sharing in the fiscal realm desirable and what would be the preconditions? How can accountability and legitimacy be best achieved in a multilevel setup such as the single currency system?
Voluminous tomes can – and have – been written on every one of these questions. Yet the Greek situation illustrates just how tricky it all is when presented in political real-time, and real-time in the financial and economic sense as well. Many of the questions cited have high pertinence too for Ireland as a slow turnaround broadens after a severe crash.
The note sees structural reforms and an improved single market as crucial aids to recovery in the euro zone. But it also says it is necessary both for citizens and markets to develop a long-term perspective on the development of the framework for the currency. It follows that the short-term battle over Greece underlines the very scale of the challenge facing EU leaders both in the immediate sense and over a longer horizon.
