In a startling turn of events, Greece yesterday capitulated fully to the European Union in terms much harsher than the terms the nation rejected a week ago in the referendum. Though more precisely everyone appears to have capitulated to Germany, as the French and Italians, among others, are reported to have supported more generous terms to Greece. So, perhaps the headline should be “Europe Capitulates to Germany.” Has a familiar ring, doesn’t it? Make of it what you will.
There is no other way to sugarcoat this: Greece has suffered a complete humiliation, which is likely to end Tsirpis’s government in the next few days. (Though I also suspect it means Greece won’t pay back much of the fresh $96 billion in loans coming its way. Greece’s total GDP was less than $25 billion $237 billion in 2014. To put that in perspective, it would be as if China lent the U.S. around $7 trillion. Stand by for “Grexit II” in a few years.)
Once it became clear that the possible exit of Greece’s tiny economy from the Eurozone wasn’t going to bring down world stock and bond markets, it was likely that they’d either capitulate or exit quickly. The astute Megan McArdle wonders why Europe still wants Greece in the EU, and concludes it’s a deep emotional attachment, like Britain has for Northern Ireland.
I think the real reason is much simpler and more direct. The real fear of all the Brussel Sprouts at EU headquarters is not economic but political. If one country is able to exit, that option becomes thinkable for everyone else come a crunch, and the centralizers will lose their momentum of the last few decades. Plus a Greek exit would surely strengthen the hand of the anti-EU vote in Britain’s still-to-be-scheduled referendum.
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