Ilana Bet-El

The cost of Europe’s unity

By Ilana Bet-El
July 31, 2011

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THE LEADERS of the euro zone bought a very expensive summer holiday at their summit last week: a second bailout for Greece, to the tune of $155 billion. That was the easy part, courtesy of the European taxpayer. With gritted teeth they also made a small step toward establishing a proper fiscal mechanism for the monetary union, by empowering the European Financial and Stability Fund to act preemptively when crises build. In other words, they finally made a proper political move.

The debt crisis in the euro zone, and the Greek calamity within it, is basically a political crisis with economic consequences - not the other way around. For the European Union is above all a political project, initially for peace (immediately post World War II), then for security (during the Cold War), and finally for prosperity (post-Cold War). All its core decisions have been made for political reasons, notably every single move for enlargement since the original six countries founded what became the EU in 1957.

This is especially true for Greece, which became a member in 1981, just seven years after the fall of the military dictatorship that had ruled it since 1967 and after decades of turmoil. This was a state with little modern experience of political stability or economic management. However, it was the height of the Cold War, and it was clear that Greece, a NATO member since 1952, had to be kept warm within the Western fold. To this end, political and economic reform were rushed through, and membership was bestowed, most probably before Greece was ready.

This reality was accepted by leaders across Europe as a political imperative. Over the years, EU funds were used in the massive network of cronyism in Greece, and its governments produced financial accounts that were short of accurate, especially before it entered the euro. Still, keeping Greece in the EU was a politically necessary step; it is a geopolitically crucial state, bordering Turkey, the Balkans, and the Middle East, and has historic and cultural ties with Russia based on a shared Orthodox religion. You must keep such a state in your camp, however difficult.

Much the same is true of Italy. Roberto Saviano’s “Gomorrah’’ details regions of lawlessness and horror in this founding member of the EU, some inadvertently funded by the union. Still, the crumbling nature of the Italian state and economy has long been known across Europe and accepted. To do otherwise is to risk a massive crisis that could break the union.

And while the story is slightly different in each of the indebted EU states, the willingness to accommodate them has always been patent: Together, they are largest and richest trading bloc in the world, underpinned by the euro. German Chancellor Angela Merkel may claim it is unacceptable for the prudent German taxpayer to finance the spendthrift Greek crony, but the EU enabled Germany to both unite in peace and become immensely prosperous. Over 40 percent of its exports go into the EU, while its banks have loaned Greece and all other indebted euro zone states billions of euros.

Upon this background, to now claim that the bailout of Greece is a financial problem seeking a financial solution is disingenuous or worse. The core of the matter is political, and it demands a clear decision on whether the EU will stay together. If the answer is yes, the solution lies not in throwing yet more money around while making strident announcements about not letting the euro zone become a transfer union. Rather, it lies in admitting it is a transfer union; hundreds of billions of euros already have been given to the indebted states and this is the preferred policy of a committed EU, which intends to stick together. As such, it will pay all its external debts, and settle all its accounts internally.

Last week’s summit resulted in the first step toward this stance. If it is maintained, Greece will effectively default within an internal mechanism, while reduced interest rates and extended schedules of repayment will give latitude for growth to the other indebted states. But the euro zone and the EU with it will survive only if true political will is shown. As yet the signs of this are few.

Ilana Bet-El, a historian and writer, is co-author of the forthcoming “The Age of Insecurity: The Art of Peace in the Modern World.’’