The Deal That Should Happen Between Europe and Greece

The odds of something really bad–notably “Grexit,” or a Greek abandonment of the Eurozone and resumption of its own currency as an alternative to increasingly onerous European creditor terms–happening between the European Community and Greece seem to be rising every moment. In no small part that’s because the new left-wing Greek government is becoming convinced European bankers and politicians alike are focused on humiliating if not breaking it, at the expense of any practical solution. But is a solution possible under current circumstances? Paul Krugman thinks so:

By late 2014 Greece had managed to eke out a small “primary” budget surplus, with tax receipts exceeding spending, excluding interest payments. That’s all that creditors can reasonably demand, since you can’t keep squeezing blood from a stone. Meanwhile, all those wage cuts have made Greece competitive on world markets — or would make it competitive if some stability can be restored.

The shape of a deal is therefore clear: basically, a standstill on further austerity, with Greece agreeing to make significant but not ever-growing payments to its creditors. Such a deal would set the stage for economic recovery, perhaps slow at the start, but finally offering some hope.

But right now that deal doesn’t seem to be coming together. Maybe it’s true, as the creditors say, that the new Greek government is hard to deal with. But what do you expect when parties that have no previous experience in governing take over from a discredited establishment? More important, the creditors are demanding things — big cuts in pensions and public employment — that a newly elected government of the left simply can’t agree to, as opposed to reforms like an improvement in tax enforcement that it can. And the Greeks, as I suggested, are all too ready to see these demands as part of an effort either to bring down their government or to make their country into an example of what will happen to other debtor countries if they balk at harsh austerity.

So that’s the fundamental conflict here: a test of wills between those for whom austerity has become the sina qua non, and those for whom it is anathema. Judge for yourself who is exhibiting bad faith. And remember that it’s not just Greece that will suffer if shakes the Eurozone to its roots.

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Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.