But the north-south debate misses the essential alignment, which is Paris-Berlin. During the bailout crisis, Europe walked to the brink — not just in terms of a weak Greece exiting the euro zone, but of a strong Germany decoupling from its partners. With Monday’s deal, the core of Europe reaffirmed its partnership, regardless of what happens in the small peripheral country of Greece.
The agreement must be endorsed this week by the parliaments in Greece and Germany, the two countries that were locked in public confrontation. That’s a good thing, for it will give the agreement the kind of public affirmation that has been too rare in modern Europe. The Greek legislature will have to sign off Wednesday on fundamental reforms of public pension, financial accounting and tax collection. The German Bundestag will have to endorse rescuing a country that, in the eyes of many Germans, has been wasteful, corrupt and perhaps worst of all, ungrateful.
“This was an inflection point for the euro zone,” said Peter Wittig, Germany’s ambassador to Washington, in an interview Monday afternoon. He argued that while Greeks may complain that the deal is being imposed on them, it represents a German reaffirmation of solidarity with Greece — and with the larger idea of an unified Europe that the euro represents.
The Greek bailout negotiations have often seemed a bizarre exercise in financial bluster. The left-wing government of Prime Minister Alexis Tsipras imagined that a small, bankrupt Greece had leverage over a powerful, prospering Germany. That illusion came crashing down in the aftermath of the Greek referendum a week ago. A defiant Greek public said “no” to Europe’s terms, only to find that Germany and many other members of the euro zone appeared willing to let them stumble toward a “Grexit,” as it came to be known.
The Greeks had hoped that their European partners could be intimidated into making financial concessions by fear of the financial contagion that might follow a Greek bankruptcy and exit from the common currency. But it turned out that the deeper concern for Germany and its partners was what might be called “concessions contagion” — the prospect that if the euro zone caved to Tsipras, other weak indebted countries that had made reforms — such as Spain, Portugal, Ireland and Cyprus — would feel they had been suckered. The only way to avoid this form of contagion was to take a hard line with Greece.
The terms of the $90 billion-plus bailout package will be negotiated only after the Greek parliament commits to the kind of reforms that other debtor nations have made. Then, promise the European leaders, the spigot will open — and Greece will finally get the sort of debt restructuring and investment it needs.
A statement issued Monday in Brussels after the euro zone summit said that “nominal haircuts on the debt cannot be undertaken.” But the previous paragraph effectively says the opposite: “The Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level.”
Germany also appears to have conceded, at last, that austerity by itself won’t produce economic growth. The bailout plan calls for a 50 billion euro trust fund (financed by sale of Greek government assets) that can be used for investments, as well as a 35 billion Euro commitment to growth and investment spending, plus a still-vague pledge of 300 billion euros for long term public and private investment. The promise, implicitly, is that on the other side of pain lies hope for an eventual restoration of prosperity.
The moment of truth in the Greek crisis came when German Chancellor Angela Merkel indicated that she might prefer a Grexit to more concessions to an insolvent Greece. The Germans even floated a paper calling for a “temporary” suspension of Greece’s membership in the euro. This put Merkel on a collision course with French President Francois Hollande, who had insisted that Europe (and its currency) must stay together in the crisis, even if that meant extending new assistance to Greece.
The subtext in this discussion, for months, has been whether a strong Germany will remain anchored with its weaker partners. It’s easy to forget that the euro emerged in the aftermath of German reunification in 1989 — a moment that frightened France and many other nations that were scarred by two wars with a big, powerful German state. The euro represented a promise by Germany that its future was embedded with its European partners, to the point that were agreeing to give up their beloved Deutschmark in favor of a common currency.
French-German reconciliation and solidarity gave birth to modern Europe, and this was the hidden but decisive factor in the Greek bailout negotiations. The key to compromise in the marathon, 17-hour talks that led to Monday’s deal was the decision of Merkel and Hollande to stand together. The rest was fine print.