Germany has emerged as the economic hegemon of Europe as 19 Eurozone partners that use the euro currency acquiesced to its demands and imposed an unconditional surrender upon Greece, the zone’s weakest and nearly bankrupt member.
Very active diplomacy personally by President Barack Obama and Treasury Secretary Jack Lew failed to prevent Germany’s Angela Merkel from imposing her will.
She had good reasons to do so because previous Greek governments have regularly broken promises and there is little love lost between Germans and Greeks at this time.
However, President Francois Hollande, who supported Greece’s Alexis Tsipras, felt belittled by her positions and the key partnership between Germany and France to manage Eurozone and European Union affairs has been damaged.
Merkel has claim to the title of Eurozone hegemon because Hollande, her supposedly co-equal partner, failed to prevent Tsipras’s rout despite fighting hard to prevent it.
It is quite likely that the Tsipras government will fall soon over this rout, greatly worsening hardships for poor and middle class Greeks since implementing the punitive deal will be hard for any regime in Athens.
An unavoidable hardship stems from automatic imposition of financial penalties on any Greek government that fails to meet specific austerity targets under trigger deadlines.
At an all-nighter, Merkel won Tsipras’s signature on a last minute deal that includes forcing him to get parliamentary approval for the terms.
Those terms are much tougher than the ones he turned down last Thursday and were rejected in last Sunday’s Greek referendum.
The approval is the precondition for further negotiations on an 86 billion euro bailout package (about $96 billion) that will be secured by sequestering 50 billion euro in Greek government assets to be held by a European authority outside Athens’s influence.
Wednesday’s parliamentary vote must approve this condition before Germany agrees to start talks on the bail out. Humiliatingly, Tsipras must also obtain prior approval from creditors for the content of resolutions put before the Greek parliament.
Negotiations for a new bailout, the third in five years, require parliamentary consent by the other 18 members. Merkel said the German parliament would flatly reject a start to talks absent such security.
After Greek approval, the German Bundestag should vote on Thursday and thus provide reassurance for positive votes in all other parliaments.
Merkel used the Frankfurt-based European Central Bank (ECB) to put Greece over a barrel. The ECB cut off additional liquidity for Greek banks, thus placing all of them on the edge of bankruptcy. The bank shutdown caused businesses to close doors as they could no longer rely on banks to pay suppliers.
This is an unorthodox procedure unique to the ECB. In any non-Eurozone country like the US or Britain, the central bank is obliged by law to provide liquidity to failing banks to prevent losses for small depositors or a run on the banking system. Later, it can order an illiquid bank’s closure or force a sale to another bank.
If the new bailout happens, 25 billion euro would go to recapitalize Greece’s devastated banks.
The increasingly bitter divisions within Europe on economic and political matters are likely to make US relations with the EU harder to handle. Washington needs a united voice from its European allies, which could be more challenging to obtain.
Finding a reliable interlocutor will be harder if trust between Germany and France erodes on issues involving European cooperation and increase delays in coming together behind US policies, including on tax cheats, sanctions against Russia and NATO defense budgets.
For some, this rise to hegemony is the natural result of Germany’s economic power but raises demons for others in Europe of the 20th century ambitions of an exorcised Nazi past.
It could also herald the start to an end of the unprecedented Post World War II European project for ever greater economic and political union among Europe’s previously fratricidal enemies.
The deep fissures that emerged during the negotiations between the German-led northern group — including Finland, the Netherlands, Estonia, Lithuania, Slovakia, and Slovenia – and the rest cannot be papered over easily.
“Europe is our creation, not our stepmother,” Italian Prime Minister Matteo Renzi – the third major Eurozone voice — commented. He empathizes with the Greek people’s pain and sought a softer touch with Tsipras.
European unity is already under severe strain from the increasing strength of far-right nationalist politicians, Russia’s intervention in Ukraine, the influx of unwanted refugees and the threat of home-grown Islamic terrorism.
Those strains are among reasons why Britain, the only major non-Eurozone power capable of standing up to Germany, is gearing up for a referendum on leaving the 28-nation EU in 2017.
Retaining Britain will require far greater changes in German policies, including revision of the EU founding treaties, than conserving Greece’s tottering hold in the Eurozone.
If Britain leaves, the Eurozone may slide towards a split between the German-led north and French-led south.
There is some validity to the claim of northern critics that Greeks relied for too long on European tax payers to finance their lifestyles. But the Greek people have paid a heavy price in recent years with unemployment touching 50% in some sectors and a 25% shrinkage in the nation’s economy.
Some experts note that less than 6% of the two previous bailout totaling more than 300 billion euro entered the Greek economy. Most of the money went to service debt owed to foreign banks and governments.
The result of this primacy of creditors was a severe hit on Greek economic growth. For the moment, it seems that primacy will continue and Greeks may stagger for a long while.
graphic via shutterstock.com