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European Union weathers Greek storm, but more clouds gather

LONDON — Chancellor Angela Merkel of Germany said about Greece on Sunday (July 12) that “the most important currency has been lost: that is trust and reliability”. But many Germans think the most important currency that has been lost is the Deutsche mark, the symbol of rectitude and confidence that embodied West Germany's ascent from the ashes of World War II.

European Union weathers Greek storm, but more clouds gather

Greece's Prime Minister Alexis Tsipras talks to the media as he arrives at a euro zone leaders summit in Brussels, Belgium, July 12, 2015. Photo: Reuters

LONDON — Chancellor Angela Merkel of Germany said about Greece on Sunday (July 12) that “the most important currency has been lost: that is trust and reliability”. But many Germans think the most important currency that has been lost is the Deutsche mark, the symbol of rectitude and confidence that embodied West Germany's ascent from the ashes of World War II.

That same sense of solidity is badly lacking in the European Union as it confronts the limits of its ambitions, and yesterday morning's painful deal on Greece seems unlikely to restore it.

The latest effort to preserve Greek membership in the eurozone has only deepened the fissures within the European Union between north and south, between advanced economies and developing ones, between large countries and smaller ones, between lenders and debtors and, just as important, between those 19 countries within the eurozone and the nine outside it.

In the name of preserving the “European project” and European “solidarity”, the ultimatum put to Greece required something close to the surrender of the nation's sovereignty. For all of Greece's past sins, and for all of the gamesmanship and harsh rhetoric of the governing Syriza party, this outcome arguably had elements of punishment as well as fiscal responsibility.

Whether this is good or bad for Greece, in the end, the Greeks will decide. But it averted an outcome that could have left Europe even more badly fractured. And it highlighted the willingness of some leaders to make a compelling case for unity over narrow national interest, especially President Franois Hollande of France, who played an important role in mediating between Germany and Greece.

Unpopular and yet contemplating another run for the French presidency in 2017, Mr Hollande displayed leadership and distanced himself from Ms Merkel and German demands, which many in Europe, especially in France, saw as selfishness and even vindictiveness.

Yesterday, Mr Hollande said that “even if it was long, I think for Europe this was a good night and a good day”.

Yet it remains to be seen if the European Union can now, after so many years, lift its head from its euro crisis and begin to concentrate on other key issues – providing economic growth and jobs for its young people, a rational and unified policy on migration, a response to Russian ambitions and aggression in Ukraine and elsewhere, and a British vote on whether to leave the European Union.

A so-called Brexit – an exit by Britain, which is expected to overtake France as Europe's second-largest economy and is one of Europe's main military and diplomatic actors, with a seat on the UN Security Council – would be far more damaging to the European Union than the departure of tiny, difficult Greece.

Britain, which never joined the euro currency bloc, plans to hold a referendum on whether to remain a member of the European Union by the end of 2017, and Prime Minister David Cameron is negotiating now to change Britain's terms of membership. The mess over Greece has hardly helped the reputation of the European Union inside Britain, but it may also help Cameron secure a better deal.

And a newly revanchist Russia poses an unwelcome challenge to the post-Cold War order.

Together with the migration crisis and Greece, these represent “the four horsemen” circling around Europe's future, said Dr Rem Korteweg of the Centre for European Reform, a research institution based in London.

“The four horsemen threaten the EU precisely because they raise issues that can only be solved if governments prioritise a European solution over narrow national agendas,” he said. “If a European answer cannot be found, the horsemen will continue to promote chaos, instability and mutual recrimination” within the European Union.

As for Ms Merkel, her reputation hangs in the balance, at home and in her role as Europe's de facto leader. Having rejected a Greek exit from the eurozone three years ago in the name of European solidarity, she has again avoided that outcome. This time, she risked considerable cost to her political standing at home. But what would really damage her legacy is another expensive bailout for Greece that fails.

The crisis that played out over the weekend was just the latest in a series that traces back to the origins and nature of the currency union.

When Germany under Chancellor Helmut Kohl gave in more than two decades ago to the entreaties of President Franois Mitterrand of France and agreed to give up the Deutsche mark for the new common currency, the euro, he did so for the same reason Mr Kohl had agreed earlier to trade one East German mark for one West German mark: politics.

Economics was never the most important issue, and Ms Kohl and Mitterrand, for that matter, ignored the voices that warned against a common currency without common financial institutions or fiscal policies in a set of widely varying economies.

Greece was allowed into the eurozone for largely the same reasons, wishful politics, that put ancient Greece, the core of European culture, at the heart of a European ideal built on civilisation and peace. The fact that today's Greece bore little relationship to the country of Socrates or Pericles was simply ignored. And so was clear evidence, well-known at the time in Brussels, that the Greeks were regularly faking their budgetary figures to qualify for the euro.

The magical thinking involved was that the euro, somehow shorn of politics, would bring all these different economies into closer balance. The past decade has proved that conclusion to be illusory. And yesterday's deal – if it is ratified by an angry Greek Parliament, and by an unhappy German Parliament, and not derailed by smaller countries like Finland whose coalition governments depend on the support of euroskeptic parties – will avert the debacle of a country leaving the common currency for the first time. But by itself, it will do little to strengthen the future of the euro, and might simply prolong the agony and deepen the divisions.

For many in Europe, the euro's economic benefits have been offset by the constraints it imposes. For the weaker economies in particular it has become a sort of prison, limiting the ability of elected governments to use budgetary policy to smooth out the ups and downs of the business cycle and eliminating the use of currency fluctuation to help manage national economies.

For Greece, the crisis five years ago was a chance to create a modern democratic capitalist state, which was one of the reasons to join the European Union in the first place. Many Greeks suffered, the debt mountain grew, and finally, as long predicted, the economic squeeze produced a political revolt – and just as Greece had finally seemed to turn an important corner and was running a primary surplus, in other words, financing its current budget and having something left over to pay its debts.

The victory in January of Prime Minister Alexis Tsipras and his Syriza party led to the reversal of some key economic overhauls demanded by creditors, threw the Greek economy backward and raised even higher the requirement for further loans. Mr Tsipras bet big but lost. But so have the Greeks. THE NEW YORK TIMES

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