However, the more one zooms out, the more one is left asking: Does the E.U. and its members have a plan to avoid the next Greece? And the alarming — though not surprising — answer seems to be no.
The more one thinks about the logic of the Germans and other European powers, the shakier it looks. Leaders of other E.U. nations have purely political reasons not to let Greece out of its debts. If all it takes to ease the terms of a deal is electing a far-left party such as Syriza, then voters in other heavily indebted countries such as Portugal and Spain could easily do that as well. The incentive for future governments to not spend wastefully is substantially weakened.
In other words, the E.U. countries agree with the proposition that “if we bail you out this time, you or someone like you will keep making bad decisions.” Yet a loan has two parties: the loanee and the loaner. And in this case, banks throughout Europe lent Greece billions of dollars despite the obvious risks. But instead of forcing investors to face the consequences of their terrible decisions, European governments lent Greece the money to pay back the banks, effectively saving them from their screw-ups. As long as the risk of lending to wasteful countries is socialized, banks will continue to do it even when the loans make no financial sense, which means that the E.U. has effectively condemned itself to repeating this situation again and again.
In short, with respect to the health of the euro system, it almost doesn’t really matter what happens with Greece at this point. The damage has been done: Greece will take years to recover, and we’ll just wait for the next profligate country fueled by bad loans from foolish lenders to reach the breaking point. Whether or not Greece stays in the E.U. and the currency system, banks in Germany, France and elsewhere have already taken the same lesson that Wall Street took from the U.S. financial crisis: Most people in power will only start moralizing about bailouts after the private sector has been saved. Combine the socialization of risk with the E.U.’s restrictive currency system, and it becomes clear that the next Greek-esque crisis is not a matter of “if” but “when.”