By Ezra Klein
We last checked in on Greece in the direct aftermath of the country’s election, where New Democracy, the pro-bailout party eked out a slim win. Since then, ND has managed to overcome the first potential hurdle, forming what looks to be a stable government. For now.
Which means it’s time to move onto the next set of negotiations that could destroy the euro zone and plunge the world into a miserable recession: the renegotiation of the Greek bailout? The expectation was that if the Greeks voted the “right” way — that is to say, voted for New Democracy, which wanted to largely abide by the bailout, rather than for Syriza, which wanted to kick Germany in the shins and walk away — the Powers That Be in the euro zone would reward the Greeks by loosening the terms of the agreement.
The renegotiated terms could include more time for Greece to hit its deficit targets, lower interest rates on their loans, more money to bolster their budget, or even some kind of external stimulus. France is open to any or all of those. Germany, the Netherlands, and some of the other Northern European nations say they are not.
If the Northern Europeans prevail, the odds that Greece will manage to keep to this timetable are low, and the odds that New Democracy and its coalition will survive are infinitesimal. Voters do not tend to like parties that aren’t able to deliver anything more than a ringing endorsement of crushing poverty at the hands of more powerful countries.
The Northern Europeans know that, of course. So you might ask why they seem so intent on cracking Greece in half. One plausible story I’ve begun to hear is that an increasing number in the euro zone actually want to drive Greece out. The idea, basically, is that Greece is such an unsalvageable basket case, and its economy is so much weaker than anyone else’s, and its governments have been so much more dishonest and difficult to deal with, that solving Greece’s problems would mean rewarding irresponsibility while not solving them would mean an endless cycle of crisis. At some point, it’s better just to cut them off and cauterize the wound.
At that point, having shown how serious they are about punishing wayward members, the euro zone can extend more support to the remaining, and more responsible, countries in the currency union. Having made an example out of Greece, and forced everyone to stare into the abyss, they will both have more support for saving the rest of the periphery and less fear that other countries will think they can flout the rules without consequences.
But, of course, the euro zone can’t be seen to actually cut any countries off. All they can do is make it impossible for Greece to remain; which appears to be what they’re doing. It almost goes without saying, of course, that if this is the plan, the chances for it to go awry and wreck the world economy as the euro zone collapses under a series of unmanageable runs are very, very high.