epa04843942 Greek Prime Minister Alexis Tsipras (C) talks with German Chancellor Angela Merkel (L) and French President Francois Hollande at the start of eurozone leaders' summit on the Greek crisis at the European Council headquarters in Brussels, Belgium, 12 July 2015. Greece is teetering on the edge of default, cut off from bailout aid, in arrears to the International Monetary Fund (IMF), owing large debt repayments this month and fending off suggestions that it could soon exit the eurozone. EPA/OLIVIER HOSLET
Greek Prime Minister Alexis Tsipras (centre) talks with German Chancellor Angela Merkel (left) and French President François Hollande © EPA

At least Alexis Tsipras avoided having to send Greece’s fairest one hundred maidens in tribute to Berlin. Apart from that, the Greek prime minister has had to concede on pretty much everything the other members of the euro demanded.

The details are still trickling out about the political agreement struck by the all-night eurozone summit, and there are a lot more decisions to be made in the coming days. But we can already draw three lessons. None is particularly edifying.

First, the decisions Europe’s busiest politicians find it appropriate to make are outright bizarre. The draft document that the eurogroup of finance ministers prepared for leaders on Sunday contains, among other things, a specific requirement to improve competition among . . . bakeries.

Perhaps the bakers of Greece need more competition. Perhaps, at a stretch, we can find some reason why this would contribute to a higher Greek growth rate. But we should gasp at the hubris of a class of European politicians who think both that their time is well spent doing this kind of micromanagement and that their preferred micro-policies are so conducive to growth they can overrule the domestic political process.

Greece unquestionably needs reform. But remember where the country was just a year ago. Austerity was paused in 2014, which allowed growth to return. Athens was in a primary surplus and needed no further financial aid — only extensions to smooth out the steep repayment cliffs in 2015 and 2016 that the eurozone and the International Monetary Fund recklessly left unchanged in the 2012 restructuring. Would it really have been so hard to simply grant the extensions (without haircuts), let the growth rebound continue (which would have increased the ability to service the debt) and leave Greeks to fight out whether and how to fix their country (or not)?

Second, the one constructive party in the past few weeks has been France. After five years of playing second fiddle to Germany — and to Berlin’s tune at that — Paris rediscovered its status as coequal leader of the European project. For all its sternness, Germany does not want to go it alone. The health of the euro would have been stronger today had France retrieved its confidence sooner.

But note what it took. Once Grexit was publicly contemplated at the highest levels in Berlin, the scene was being set for a return to speculative attacks on France itself — not tomorrow, not the day after, but certainly one day. This, we must recall, was the main French motivation for monetary union in the first place. Grexit would have eliminated the main raison d’être for the single currency as seen from Paris.

Finally, Greece capitulated because the European Central Bank forced it to do so. In flagrant defiance of its treaty obligation to support the general economic policy of the eurozone — which includes since June 2012 a requirement to separate the health of the banking system from the solvency of sovereigns — the ECB forced a shutdown of the Greek banking system and made clear it would only let it function again once a deal on sovereign finances had been struck.

This has established beyond any doubt that the independence of the eurozone’s central bank from politicians is nothing of the sort. Far from being independent, the ECB does governments’ bidding. But its dependence is selective — and that is something that should worry the citizens of eurozone nations beyond Greece.


Martin Sandbu writes Free Lunch, the FT’s daily premium newsletter on global economics

Get alerts on EU economy when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article