Europe’s silver lining in the Greek deal
The Greek crisis taught the European Union that a single currency needs greater political union. The reform plan for Greece includes a way to track its financial obligations to the eurozone.
In an agreement Monday with other European nations, Greece decided to stay in the eurozone by acknowledging a duty to reform its economy. Yet the agreement, which still requires a sign-off by lawmakers around Europe, is more than a corrective for the Greeks.
It may also be a glimpse into the future of a more united Europe.
After adopting the euro as its currency in 2001, Greece lost its way by overspending and overborrowing – and then lying about its debt. This deception precipitated the European financial crisis in 2008. To restore its obligations to other eurozone states, Greece has now agreed to pass a host of reforms. One in particular stands out for its potential effect on Europe’s grand experiment: Any draft reform before the Greek Parliament must first be approved by the European Central Bank, the International Monetary Fund, and the European Commission.
Greece, in other words, will give up some sovereignty on fiscal matters for the sake of maintaining the common currency in the 19-nation monetary union. This would be a small step toward the kind of trust and credibility needed to draw Europe closer and to further reduce the nationalism of previous centuries.
At its origins in the 1990s, the euro was to be backed by the discipline of each nation in public spending and adequate tax revenue. A monetary union needs a political union in budget policy. “The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed,” says European Central Bank President Mario Draghi.
This does not mean the end of the nation-state in the European Union or creation of a supra-state in Brussels. Rather, Europe simply needs a strict mechanism to catch and correct a member state that violates basic economic rules, such as not exceeding certain levels of debt. Free-riders that jeopardize the system by their profligacy must be held accountable.
Europe could now be at a stage similar to that of the United States after the Revolutionary War, when a loose confederation of 13 states came together in the Constitutional Convention to give up some sovereignty for a greater purpose. As Alexander Hamilton put it, “Americans needed to think continentally.” Thomas Jefferson said it even better: “[L]aws and institutions must go hand in hand with the progress of the human mind.”
The dark cloud that has hung over Greece for so long may now have given Europe a silver lining of progress. The eurozone could be achieving greater political union, in which each nation makes prudent choices with a better regard for the welfare of other member states.
In 1950, when modern European unity was in its infancy, then-French Foreign Minister Robert Schuman said Europe will not be made all at once or by any single plan. “It will be built through concrete achievements,” he stated. Greece, by agreeing to be tracked closely in its fiscal decisions, may be moving Europe to achieve the unity it has long sought.