Grexit avoided – Europe saved ?

August 30, 2015 – Greece is preparing for General Elections. The left wing of the Syriza Party has split away to form a new party. Tsipras is still a favourite but his advantage in the polls has narrowed considerably. The ESM program has been voted in the Greek Parliament because Tsipras was supported by the opposition parties while his own party was split over the issue. The other member states of the Eurozone also voted to start the ESM-program. So finally the Greek people will have a vote on what happened after their referendum in June. The Syriza government had been elected on the basis of two incompatible promises: to stay in the Euro, and to get rid of the conditionality for the financial support from the other Eurozone countries, the ECB and the IMF. The referendum had the clear result that this incompatibility should be resolved in favour of rejecting the conditionality. It was a betrayal because the Greek government did not tell the voters that doing this would inevitably mean a Grexit. The following days with the introduction of capital controls and a shortage of cash from the banks were a shock to the people.

On July 13, 2015 – after 17 hours of intense and controversial debates – the heads of state and government from the Eurozone found a compromise on the Greek drama. President Francois Hollande is very content that a Grexit has been avoided, Chancellor Merkel is content that she can claim that the basic rules of the Eurozone were preserved. Prime Minister Alexis Tsipras claims that he got a very bad deal – but no better deal was possible. He accepted all the conditions which the Greek people rejected in the referendum on 5th of July and even more and harder new conditions linked to the fact that he now wants money from the ESM mechanism which definitely has harder conditionality than the former EFSM. Wolfgang Schäuble had made clear that he also had the alternative to orderly leave the Euro for five years and try to re-establish the economy by devaluating the new drachma. Most Eurozone countries had sympathy with this solution, but there was a strict opposition from France, Italy and (no wonder) Cyprus. In the end a new program under the ESM mechanism was proposed unanimously by all Eurozone member states.

This was a decision to start negotiations about an ESM program if and only if the Greek parliament accepts the compromise and decides to start some major reform steps within two days until Wednesday, 15th of July. With the votes of the opposition Tsipras got a majority for some reform laws. Other Eurozone parliaments followed to approve the deal to start negotiations on the ESM program.

I admit I was not at all convinced that the compromise of this summit was a good basis for a solution of the Greek crisis. There is a widespread view that any Grexit would be a humiliation for the Greeks: this is wrong, because Grexit could possibly be the only chance for the Greek economy to become competitive again on the basis of a strongly devalued drachma. And to become competitive and get a chance to export again is not humiliating, but a real effort to get out of the crisis. It is true that Grexit is not without risks. But to stay in the Euro and only continue a policy that was strongly rejected by the Greek people is the worst solution. In the eyes of the Greek people it is just blackmail and so far illegitimate, in the eyes of the creditors there is no trust that Greece has the real political will to comply with the conditions. Yes – the people believe it is better to stay in the Euro, but no Greek politician has clearly explained to the people that the two things – staying in the Euro and stopping the tough control of conditionality by the creditors are two incompatible wishes. The people must decide. Now the elections will give us a picture of how far the sobering experience of the Tsipras government helped to make the voters more realistic. If the opposition wins the new government could go back on track. But Greece lost far more than just a year of irrational policy, it lost trust which takes long to regain – and this trust is not much higher in the Nea Demokratia or in Pasok than in Syriza because all these parties have an abominous record in keeping promises and maintaining efforts for structural reforms.

The referendum was a mistake mainly because it was asking to vote on a proposal that was already obsolete and because the Greek government did not explain that the Yes-Vote inevitably would lead to capital controls and a possible Grexit. However after the people were asked it is a betrayal of the people to negotiate on a diametrically opposite basis. Credibility can only be restored if the elections are now held making very clear that the the alternative is either having strict conditionality and the Euro – or to deny that conditionality and to leave the Eurozone.

The fact that France and Italy strongly opposed Grexit may not help their governments at home. The erosion of Hollande’s popularity continues and the chances of Mme Le Pen to win at least a majority in the first round of an election are rising. The cost for keeping Greece in the Euro will be immense – and a considerable part of that cost will be paid by the French taxpayer. If Le Pen would finally become President of France this would mean the end of the Euro, it may even mean the end of the EU as it exists today. Tsipras brinkmanship had been closely observed in Spain by the new Podemos party, which could become a major political factor after the general elections taking place in November. If Podemos plays the same game as Tsipras does, even in a coalition with the socialist PSOE, the big difference is that in the Spanish case the sums involved would be too high for the rest of the Eurozone. While Spain also has to pay a considerable part of the Greek ESM-program – which may be lost money – the ESM funds will nearly be exhausted by Greece only. The German chancellor believes that the advantages of the found solution prevail over the disadvantages – I beg to differ. But I understand that for the German Chancellor Greece is not important enough to risk a break with France and Italy.

Germany has helped the Eurozone by taking billions from their taxpayers to guarantee banks to be able to fill the money machines where people withdraw their money. The money was not used properly, but demagogues were for some time successful to instigate hate against the Germans and their government. This is humiliating for Germany and must have the consequence that such programs are avoided in the future. If some countries believe that their deficits should be paid by others this may be possible in a beneficial environment, but not if tensions between member states grow. Today it seems unthinkable, but I would no longer exclude that Germany leaves the Eurozone and goes back to the D-Mark in case more Tsipras/Varoufakis-like nationalist governments rise in Europe. This would be a severe step because the EU as it exists today is built on the assumption of an „ever closer union“ including a monetary and economic union. But such a union is only possible if any nationalism is overcome by a European attitude in all member states – even more: if such nationalism comes up it is imperative to actively fight against it. Lamentably nationalism is alive and even growing, and populist governments are generally also nationalist governments.

The US government was right to be concerned about the geopolitical implications of the Greek crisis. But the commentaries of many American gurus, some of them even Nobel Prize winners, showed an incredible incompetence in European affairs.

So Germany has now come into a similar situation that was before only characteristic for the United Kingdom: Euroscepticism is growing and the people feel a lot of misgivings about European integration which is no longer seen as beneficial to the country. Therefore Germany should give the British Prime Minister David Cameron more support in redefining the EU on a level of integration acceptable to the big majority in all member states. This would mean treaty change and the reversal of some integration already part of the acquis. I always defended the acquis but I believe that we cannot keep it any longer without loosing the support of a majority in most countries in northern and eastern Europe.

To keep Britain in, to give more space to national competences while keeping the narrower framework of the single market, to make enlargement easier we may need such a weaker EU. The existing structures should be left as they are to form a shell to keep whatever is possible together. With less competences this EU would possibly rather look like the former EEC before Maastricht with sectoral agreements where by harmonisation competences are definitely given to the Commission. But such an EU would be unable to develop further integration. Instead it could try to further enlarge – for example by Turkey and Ukraine.

At the same time a kind of Core Europe should be founded by those countries that stick to an ever closer union and want to go a big step forward giving up much more of their sovereignty. A common body controlled by a parlamentary assembly elected by the national parliaments (like the early EP) could form a European government. Deeper integration should be given a fresh start only for those who are not only willing to promise to participate, but with a clear political will of all relevant parties inside the country to give up national sovereignty – which may need referenda to give it the necessary legitimacy. The rules agreed in the new treaties should be more than just entry criteria, but also be strictly controlled by all other member countries and the European Court at any time after accession. Non-compliance means leaving the new core union and passing into the periphery EU shell. Renegotiation is only possible after giving up all privileges of membership first – so if anybody wants an in-out-referendum, it means out first, and then a referendum on re-entering. The Union must always be a free and voluntary committment, but if this commitment is not there and the policy of some freely elected governments runs counter to the commitments, those countries should be voted out of the closer union by their peers.

Countries that do not comply with the idea of Europe as a common project against nationalism and ceding sovereignty to the European Government may stay in the old-EU-shell, but cannot become members of the new union. Germany should give a strong committment to full integration of the new union including Eurobonds, Transfer Union etc. under the clear condition that national parliaments including the German Bundestag give up their rights to the budget in favour of the European parliamentary assembly. Monetary contributions to the EU-shell should be dried up, new funds must be concentrated on the new union only which should also have its own tax resources.

I would have preferred a united European Union on the basis of solidarity and a serious common policy, a Europe without borders, with a common currency and common rules. A Europe with an enormeous richness of different cultures but with one political culture, without corruption, without hate and nationalism, without demagogic populism and a strong common position in the globalized world. During the last six months this European dream has suffered severe setbacks. Let us give it a new start without those who do not share our values and our determination against any new rise of nationalism. Let us found a new union starting out with less member states but based on a stronger committment. Let us avoid any cheap opportunism in accepting member states that do not share all goals of the project. The old-EU-shell still serves a purpose, but mutual solidarity needs the new union. This core union must be open for countries that decide later on changing their policies in accordance with the principles of the core union. Who could be members of Core Europe ?

The decision to join is not a geographical question, it is also not a historical question. So the six founding states are not automatically members, neither would recent members be excluded. It is a political decision ! It depends on the will to pursue a new path to much closer integration. And only with much closer integration a monetary union makes sense. Therefore the Euro and membership of the Schengen scheme is a condition to belong to the core. But at the same time those who do not want to join the core should also leave the Euro – or at least would continue with a strict no-bailout-clause while core members need to built an infrastructure of solidarity with transfers between states and with commond bonds issued by a common European authority and for the benefit of the EU-core budget.

For some time there would be a new competition between the core and the old shell, but I am convinced that the core will be a source of success. Later it may attract more members of the shell to join the core – but this should always be bound to a referendum and with a genuine giving up of sovereignty.