In the latest twist to the Greek tragedy/Norse saga, France, the European Commission, Italy, etc. are proposing that Greece remain in the euro zone while receiving some undisclosed measure of debt relief in return for agreeing to raise taxes and cut benefits. The problem with this “euro-friendly” solution is that even if Greece were to have all its debts forgiven, it could not grow and prosper within the euro straitjacket. One ”for instance”: the cost of its vacations would not fall inside the single currency, indeed they would actually cost more if even the mildest “austerity” proposed by creditor institutions were to be accepted. Greeks would be running uphill with a slightly lighter pack.
Germany, Finland, the Baltic states, etc. are proposing, on the other hand, that Greece leave the euro “temporarily.” But it is not certain whether (or, if so, to what extent) this liberation from the euro straitjacket would be helped by some measure of debt relief. Greece would probably recover even under a continuing weight of debt, but that recovery would be slower and more painful. Why would Greece recover even so? If Greece were out of the euro, its new currency — the new drachma — would decline and make its vacations cheaper and more attractive, as well as all other Greek goods and services.
That said, it would recover more quickly and easily if its debt burden were in some way reduced or its repayments stretched out to “the Greek kalends” (i.e., postponed forever).
Greek’s recovery in these circumstances would be a mixed blessing for the European Union, however, because it would bring Portugal, Spain, Italy, Ireland, and even France face to face with the harsh question: Why exactly are we persevering with “austerity,” high unemployment, and anemic growth in order, all in order to remain inside the euro, when outside the sun is shining? As both Christopher Caldwell and Andrew Stuttaford have independently pointed out, that question is the real “contagion” that the European Union establishment fears. It would make the sacrifices that these countries have made look like fools’ courage and undermine the euro with everyone.
Hence the German suggestion (“proposal” is too definite a term) that Greece’s departure be “temporary.” That’s a fig leaf to cover the EU’s naked embarrassment that the euro has proved to be less a stimulus than a sedative and even a poison. But it’s not a sufficiently large fig leaf. The Greeks might need to be dragged back into the euro even more brutally than they are at present being expelled. And other countries would, well, notice.
None of these choices look good.
The worse outcome of today’s discussions, of course, would be the Franco-EU-Italian proposal that Greece receive a measure of debt relief while remaining in the Euro: That would kick the can down the road for something like 18 months, when a new Greek crisis would erupt and the same agonies would recur. Sisyphus would watch the stone roll back down the hill but only to realize that he would have to start rolling it back up again. So, not only can one not rule that outcome out, maybe it’s the most likely result.
Alas, it’s very hard to come up with a solution that won’t undermine the euro. And what with one thing and another, that’s very just and proper.