The Greek financial crisis is neither Greek nor financial any more. It is a political crisis of the whole Europe. Its solution is no longer financial, but political. It is no longer a matter just for Athens, but for Brussels. Indeed, it is now a Franco-German problem above all, since their banks are most exposed.
Greece will never repay its debts. The numerous aid plans for Greece, even if they have so far succeeded in avoiding default, failed to clear the long-term liabilities. One must face the facts, which have been known for a long time: No common currency area can last without a dominant country or without some form of federalism (as in the US).
The current crisis cannot be resolved by Greece exiting the eurozone, as some have suggested. This would undermine the European banking system within days and increase the public debt of other European countries. And we cannot expect a miracle from Greece, as if it could undo the results of 30 years of lax policies in a few months.
The mistakes that got us here
Now that the consequences are manifest, it would be easy to dwell on the mistakes that got us to this point. We should not have let Greece enter the Economic and Monetary Union with falsified figures. We should not have let the debt grow so large given the country’s weak economic fundamentals. We should have forced the Greeks to establish effective fiscal and economic institutions long ago.
During the more than 10 years we have had a single currency, we could have set up a finance minister for the Union to effectively control the economic policy of each member state. European governments could have done more to ensure that the European banks shared the burden. The level of remuneration currently paid to their traders and executives surely shows they could afford it. Since innovation and growth are the pathway out of economic crisis, Europe could have developed a program to support massive investments in European industry and launch a new “Airbus” of the rail, of telecommunications, of electric cars, or of genomics. We should have kept on making brave European decisions.
For all this, alas, it is too late. If we let Greece go bankrupt, the euro will disappear. The very principle of the European Union will be challenged. Unemployment will rise again, including in Germany, which has up to now benefited from an undervalued euro. If we let Greece go bankrupt, what lies ahead is an economic and political crisis worse than that of 2008. It is therefore necessary to change our perspective. We must stop thinking of the Greek problem, and start thinking of the problem of the European Union. Solutions exist.
Political solutions for financial crisis
We are only in dire need of the political courage to implement the following:
2. Launching a “European Brady plan” (named after the American treasury secretary who negotiated Latin American’s debt restructuring in the 1980s) that would involve issuing European treasury bonds that would stretch out the debt payments of Greece, Portugal, and Ireland for 20 years and finance European investments;
3. Assessing a broad-based European Value Added Tax at a modest rate (1 percent) that would raise the necessary funds to repay the debt.
Though collectively the world’s largest economy, Europe cannot compete in a world dominated by America and China unless it proactively resolves the present crisis and acts as a unified political entity. In short, the solution to Europe’s economic challenge is political.