EU leaders should abandon dogma and act as statesmen, because much would be lost for the Greek people, the EU, and the United States if Greece becomes a failed state, writes Sir Michael Leigh.
Sir Michael Leigh is senior fellow at The German Marshall Fund of The United States and a former EU official. EURACTIV republishes this op-ed, first published on the GMW-US website, with his authorisation.
For the United States, Greece is a valued NATO ally and a land of relative stability, between the faltering Balkans, North Africa, and the Middle East. Its strategic importance throughout the Mediterranean has increased following the failure of the Arab uprisings and the falling-out of two US allies, Turkey and Israel. Greece’s cooperation is crucial in counter-terrorism and in efforts to cope with the flow of refugees from Syria and the Horn of Africa. It has become a security partner for Israel, a relationship reflected in growing links between the Greek and Jewish communities in the United States.
The United States has an interest in Europe’s drive for greater energy security and diversification of supply away from Russia. Greece aspires to an important role in Europe’s energy security through its own offshore exploration for oil and gas and potential future production and through new interconnectors to the Balkans and up into central Europe.
Overall, the “Europeanization” of Greece has saved it from the tribulations of its Balkan neighbors. Much would be lost for the Greek people, the region, the EU, and the United States if Greece became a failed state in an increasingly troubled neighborhood. Russian President Vladimir Putin’s efforts to seduce wayward European states might then have greater success.
Against this background, US President Barack Obama and senior administration officials have repeatedly urged the European Central Bank (ECB), the European Commission, and the International Monetary Fund (IMF) to show greater flexibility to reach an agreement with Greece. Cabinet members have made dozens of phone calls urging compromise. While the president has not publicly taken a position on the Greek referendum and its implications, he observed earlier this year that “You cannot keep on squeezing countries that are in the midst of depression.” A senior White House official has called for a socially just solution. Clearly the administration would prefer less draconian demands by the creditors but is sensitive to possible accusations of interference.
German Chancellor Angela Merkel has acknowledged the link between the current financial crisis and the EU’s capacity to exercise influence in the world, commenting recently: “If the euro fails, Europe fails.” She implied that the EU’s very survival is at stake. “If the capability to find compromises is lost, then Europe is lost.”
But her finance and economy ministers do not appear to have absorbed this message. Influenced by internal political considerations, they seem to be ignoring the serious consequences of a Greek collapse for the eurozone as a whole and the EU as such. In fact, there can be little confidence that such effects could be ring-fenced, despite claims to the contrary.
Little time now remains to prevent Greek banks from running out of funds, precipitating exit from the euro and a general economic collapse in the country. Such a collapse would have devastating consequences for the Greek people, already facing shortages of basic necessities and medical supplies, and for political stability in the country. Calls for humanitarian assistance loom on the horizon; some eurozone ministers seem more open to such assistance than to a compromise agreement that would obviate the need for it.
In the next 48 hours, the ECB must at last assume its full responsibility as the eurozone’s lender of last resort. A central bank worthy of the name should not be a party to negotiations but rather should provide liquidity during emergencies. The ECB would be gravely remiss if it pulled the plug on Athens, because of credit ceilings or inadequate collateral, during crucial negotiations between Greece and its creditors.
The United States should continue to urge EU leaders to break the logjam. The administration’s arguments will find resonance in many European capitals. The French government tried, unsuccessfully, before the referendum to include a debt write-down in ongoing negotiations, alongside convincing reform commitments by Greece. French Economy Minister Emmanuel Macron has warned that any effort to punish Greece for its profligacy could be self-defeating.
The IMF has confirmed that Greece’s debt burden has become unsustainable. The administration should remain firm but diplomatic in urging European leaders, including the Greek prime minister, to be flexible in reaching an agreement. Washington should encourage EU leaders to explain to their own electorates that Greece’s debts can never be repaid. They must be written down, albeit by further pushing back debt maturities, to give Greece a chance to access capital markets and to restore life to the country’s foundering economy. Only if European leaders abandon dogma and at last act like statesmen can Greece, and the EU itself, avoid a severe setback from which they would not easily recover.