Trudy Rubin: Rethink treatment of Greece

The photo is shocking. A 77-year-old Greek retiree sits sobbing on the ground outside a bank with his passbook and identity card thrown on the ground. He had queued for hours at four failing banks but was unable to withdraw his pension of $178.

Not surprisingly, the photo of Giorgos Chatzifotiadis went viral. But the image illustrates much more than the suffering of ordinary Greeks.

This pensioner’s despair symbolizes the limits of a decades-old effort to meld European nations into one community based on shared democratic values. The long-term hope was to create a political superpower — the United States of Europe. A Greek exit from the euro would mark the end of this dream.

The danger of a Greek exit revolves less around its economic impact than it does on its potential political impact. Radical parties of Europe’s far right and left have become strange bedfellows in promoting a Greek exit from the eurozone. Their common goal is to weaken the European Union and NATO.

If Greece leaves and descends into deeper chaos, this embittered country will be strategically placed — in southeastern Europe — to cause headaches. Although it will still be an EU and NATO member, its leftist government may see nothing to lose from seeking alliances elsewhere.

Already, Prime Minister Alexis Tsipras has cozied up to Vladimir Putin, who will have a potential ally inside NATO whom he can encourage to make mischief (although Putin has yet to offer any financial incentives). Tsipras could veto European sanctions on Moscow over Ukraine (which require a consensus of all 28 members).

“The lesson of the last 10, 15 years,” says the Council on Foreign Relations’ Sebastian Mallaby, “is that weak states can damage the stability of stable, prosperous states. And if it’s a weak state, which is not only geographically within Europe but also inside European institutions, it’s not an inviting prospect.”

This was not the way the European Union was supposed to turn out.

For decades following World War II, the European dream was to reject nationalism and focus on creating economic and trade ties. And it was highly successful. Enfolded in the European Economic Community, France and Germany became allies; Spain and Portugal, long ruled by authoritarian regimes, embraced democracy. After the Berlin Wall fell, ex-communist countries joined the fold and set up parliamentary systems.

The European Union was formally inaugurated in 1993, and 11 EU members adopted the common currency, or euro, in 1999, with Greece joining in 2001.

This was a reach too far.

The essential problem is that Greek (and Portuguese and Spanish) culture and history are very different from Germany’s or Finland’s. They put different values on rules, on thriftiness.

Example: In 2010, Greece collected about 10 percent of its potential tax take; the German government collected nearly 98 percent of taxes due. So putting disparate countries into one currency, with one set of fiscal rules (largely set by Germans), was a recipe for disaster.

When times were good, heedless French and German banks were happy to loan money to the Greeks, indifferent to the load of debt that Athens was amassing. And heedless Greek governments, banks and businesses kept borrowing.

When economic times turned bad, the level of Greek debt payments became unsustainable. Under pressure from Brussels, Athens tried uber-austerity; the Greek economy contracted by 25 percent and unemployment soared to 25 percent. It became clear that Greece could not “grow” its way out of debt or squeeze any more blood out of ordinary Greeks.

But instead of granting debt relief in 2010 (meaning irresponsible lenders would take a “haircut,” along with Greek borrowers), the EU kept lending Greece more money, which went to pay off private French and German banks. This only increased Greek debt levels.

Instead of facing reality, the northern Europeans insisted that Greece do the impossible. The resultant tragedy has revealed the hollowness of Europe’s political aspirations — and institutions. The euro was built on a mirage.

Pre-euro, if a country like Greece was in economic distress, it could devalue its currency, thus increasing its exports, and grow its way back to solvency. Locked into the euro, Greece has no such option.

If the EU were really the United States of Europe, it would have multiple mechanisms to transfer resources to a member state in a crisis. In the United States, for example, unemployment benefits help infuse cash into regions going through high unemployment. The Federal Deposit Insurance Corp. prevents banks from collapsing. And if a state or city declares bankruptcy, there are rules to work it out.

But EU member states have been unwilling to commit to such transfer mechanisms. The Greek crisis may prod EU members toward greater integration, but I doubt it. Globalization seems to be driving publics worldwide toward a heightened nationalism.

It is also still possible that EU officials will try to help, whether through debt reduction or by easing a Greek exit. At the moment, however, the burghers of northern Europe seem more eager to see the Greeks suffer in order to discourage other EU members from leaving the euro.

This is shortsighted. In or out of the euro, Greece’s pain will fuel the narrative of radical European parties that are a threat to the future of a democratic Europe. If EU leaders want to save their political union, they should rethink their treatment of Greece.