In the debate over the Greek financial crisis, attention has understandably focused on questions of policy, transparency and responsibility in Athens, and in Europe. The recent meeting of the Aspen European Dialogue in Venice (March 5-6, 2010) was devoted largely to Middle Eastern issues. But questions of European and global finance – and the Greek crisis – were never far from the surface. To be sure, the Greek situation is the product of decades of mismanagement in public finance, a lack of accountability, and the pitfalls of sovereign debt in an age of credit default swaps. But as the discussion in Venice underscored, the resolution of this crisis and others of differing scale and kind besetting Portugal and Spain, will be laden with implications for the future of Europe and transatlantic geopolitics. The crisis and its implications are not just about money, but about politics, power and European security.
These realities should be kept firmly in mind as politicians and officials grapple with a response – and they argue for a much stronger and faster reaction based on shared strategic interests.
Several factors are worth noting. First, the problem in Greek public finance cannot be fixed quickly. The Greek government is moving ahead with an ambitious austerity plan, with potentially destabilizing effects in a society where public employment and entitlements loom large. Moreover, in Greece, Portugal and Spain, there will be a natural temptation to avoid the front-loading of responses which many experts see as essential to success. Some of the most painful cuts may be deferred in a bet on revived growth. The prominence of shipping and tourism in the Greek economy tie the revenue fate of the country very closely to global trends. With years of low growth as a very real prospect, this could be an uncertain bet.
Second, there is a risk that Europe will evolve into a two-class project in which financially pressed Southern Europeans, in particular, are left to fend for themselves. Across Europe, states will remain largely responsible for, and exposed to the consequences of their own economic policies – not unlike the situation of states in the US, where California now finds itself in the position of a “failed state” and New York is in danger of the same fate. This may spare members the moral hazard of underwriting risky, obscure or misguided policies, but it does little for the economic, political and geopolitical strength of either continent. It is also worth recalling that Germany and France have themselves strayed far from the Eurozone deficit limits, to the extent that these limits became essentially unenforceable. Greece and others in Southern Europe will simply be less well-placed than Germany, France or even Poland to go it alone financially – and politically. By virtue of their size and marginality in the European equation, Southern Europe, with the possible exception of Italy, is critically dependent on the reassurance only major EU partners can give to global financial markets. Not long ago, the EU saw structural assistance to less-developed regions as a key contributor to European integration. Will this tremendous progress in North-South convergence within Europe over the last decades be rolled-back in favor of a go-it-alone approach to finance and regional development?
Third, a future in which Europe’s south is weak and decoupled from core European concerns will spell trouble in political and security terms. On the European side, a weak south will mean less European capacity to deal with the range of pressing strategic challenges emanating from the Mediterranean. From energy to migration, this is Europe’s contemporary front line.
The Schengen agreement has shifted the burden of secure borders to the south and firmly linked the future of societies on both sides of the Mediterranean. North-South relations may be just as important to European prosperity and security over the next decades as East-West relations have been since 1945. A slow-growing and troubled Southern Europe will be a much less capable partner within the EU – and NATO. Greece and others will also face a future in which their leverage on issues of specific national concern may be much reduced. As an example, European interest in the “Macedonian” name dispute, already weak, is likely to erode further. Even on questions of wider concern, such as the future of Euro-Mediterranean initiatives, traditionally active Southern Europeans may find it more difficult to get a hearing in Berlin, or Brussels, especially if new funding is on the agenda.
There will be consequences for the US, as well. The progressive “Europeanization” of Greece, Portugal and Spain has had a very positive effect on their often difficult relations with Washington. The US has benefited tremendously from being able to deal with Southern Europe as a normal part of relations with Europe. The benefits of this have been on display from the Kosovo to Afghanistan and Iraq (Athens, in particular, has been quietly helpful on all these fronts, even when Greek public opinion was skeptical or opposed). To the extent that Southern Europe is decoupled from the European mainstream, American engagement in this strategically important part of Europe could revert to a more difficult and potentially crisis prone atmosphere. An insecure and inward-looking Greece may also be less inclined to consolidate the prevailing détente with Turkey in the Aegean – an issue critical to European and American interests.
Much can be done to avoid this unfavorable geopolitical future. On the European side, Greece’s EU partners will need to be more forthcoming. The new government of Prime Minister George Papandreou is making a valiant effort to confront myriad forces impeding a sweeping austerity and revenue collection plan. Athens deserves far more support than it has received, potentially financial, but above all, political. The German proposal for a European monetary fund to address future crises may be worthy idea, but it has little immediate relevance to the Greek case.
With other financial crises looming in the wings, steps taken today will have significant implications for the behavior of markets tomorrow. Political support from Washington may be equally critical, to offset perceived risks and allow Greece to borrow at more favorable rates, and to show that the US has a strategic stake in the outcome. On both sides of the Atlantic, policymakers need to break out of the longstanding North-North mold, and spend more time on Southern Europe as a component of European stability, transatlantic relations and Mediterranean security.