Europe’s Monetary (Dis)Union
Europe's Progress Toward Economic Integration
New Opportunities and New Challenges
Euro Fantasies: Common Currency as Panacea
The Case for EMU: More than Money
EMU and International Conflict
The Dollar and the Euro
The Degeneration of EMU
The Future of the Euro
Why the Greek Crisis Will Not Ruin Europe’s Monetary Union
The Failure of the Euro
The Little Currency That Couldn’t
The Crisis of Europe
How the Union Came Together and Why It’s Falling Apart
Can Europe’s Divided House Stand?
Separating Fiscal and Monetary Union
Saving the Euro Will Mean Worse Trouble for Europe
Charting the Disastrous Choices Ahead
Can the Eurozone Be Saved?
Yes, but the EU Summit Was Too Little, Too Late
How to Save the Euro -- and the EU
Reading Keynes in Brussels
Why Only Germany Can Fix the Euro
Reading Kindleberger in Berlin
The Myth of German Hegemony
Why Berlin Can't Save Europe Alone
Europe's Optional Catastrophe
The Fate of the Monetary Union Lies in Germany’s Hands
Why the Euro Will Survive
Completing the Continent’s Half-Built House
Avoiding the Next Eurozone Crisis
How to Build an EU that Works
Europe After the Crisis
How to Sustain a Common Currency
Europe's New Normal
It's Here, It's Unclear, Get Used to It
So Long, Austerity?
Syriza's Victory and the Future of the Eurozone
Austerity vs. Democracy in Greece
Europe Crosses the Rubicon
Why Greece Will Cave—and How
Alexis Tsipras and the Debt Negotiations
Why Greece and Europe Will Still Stay Attached
How to Contain Athens' Economic Problems
A Pain in the Athens
Why Greece Isn't to Blame for the Crisis
The Agreekment That Could Break Europe
Euroskeptics, Eurocritics, and Life After the Bailout
In the late 1990s, the Western world became concerned with a phenomenon known as Y2K (Year 2000), or the Millennium Bug—that is, a mass collapse of all computer systems in the seconds after the clock struck 12:00 on New Year’s Eve 2000. Most early computer programmers had entered dates only according to their last digits, rendering 1976, for example, as “76.” They did so mainly to save memory space, which was very expensive in those days, and also because they assumed that their programs would have a limited shelf life. Now it was feared that some computers would not recognize the new date in 2000 and assume instead that they were back in 1900. Some worst-case scenarios envisaged hospital machines breaking down, banking chaos, and even airplanes falling out of the sky.
The threat was taken extremely seriously both by governments and by the private sector, which spent billions of dollars checking and updating computer programs in the years leading up to 2000. In the end, the bug did not bite. There were some system failures—for example, in Japan, radiation-monitoring equipment at Ishikawa failed for a while; in the United Kingdom, falsely positive pregnancy tests were sent to some women; and in some countries, various ticketing machines gave a little trouble—but that was about it.
All this calls to mind the long Greek agony over the euro. When the crisis first blew in 2010, there were widespread fears that if Greece defaulted on its public debts, contagion would bring down banks across the eurozone and destroy the market for government bonds in the next-in-line states, such as Italy, Spain, Portugal, and perhaps even Ireland. The fears seemed somewhat justified: nobody quite knew how markets would react, and the complex interconnections between Greek debt and bank solvency elsewhere were not clear to even seasoned experts. It was precisely this sense of uncertainty on which Greek governments traded from the start of the crisis and upon which Syriza’s “game theorists” based their ultraconfrontational stance starting in January this year.
To be on the safe side, though, European officials and banks have spent the last five years conducting the financial equivalent of what the Y2K teams did, quarantining Greece so that any fallout could be safely contained and a G2K avoided For this reason, the European Union provided emergency bailouts for Greece, writing down a substantial proportion of the debt in return for commitments to reform state and economy. To be on the safe side, though, European officials and banks have spent the last five years conducting the financial equivalent of what the Y2K teams did, quarantining Greece so that any fallout could be safely contained and a G2K avoided. Recently, German Chancellor Angela Merkel claimed that this had been achieved and that Europe was now “much stronger” than when the Greek crisis had first exploded in 2010.
The announcement greatly increased the willingness of Brussels and the other European capitals to confront what they perceived as repeated Greek backsliding on the implementation of agreed reforms. The showdown between EU and Syriza last weekend was the result, and yesterday’s “no” vote in the referendum on the bailout terms seems to suggest that the country is about to exit the euro. So we will now see whether fears of G2K will be realized or whether the mechanisms put in place by the rest of the EU since 2010 have worked—although, as with Y2K, we will never be sure if the threat was all imaginary in the first place.
In some sense, contagion will probably be contained. Sunday’s referendum was framed by the Greek government as a vote against austerity, not against Europe or even the euro. We don’t yet have reliable polling data, but it is clear that many of those who voted “no” on Sunday were young professionals—or educated but un- or underemployed Greeks—who would be natural Europeanists in any other country and who in fact remain committed to the European idea but have been worn down by five years of austerity. Their ballot was a rejection not just of the harsh bailout terms, but also of stark warnings from Brussels that a “no” vote would result in Greece’s automatic departure from the eurozone. Observers must thus deal with the paradox that some of the most pro-European Greeks (along with many extreme leftist and rightist anti-Europeans) voted against the bailout deal. Greek Prime Minister Alexis Tsipras and his Syriza party want a return to the drachma. They know that most of Greece wants to stay in the euro, so they will not be in any hurry to leave it. Much better to wait until Brussels forces them out. Athens will play this game, in which the resignation of Yanis Varoufakis as finance minister is only the latest move, to the bitter end.
It may be that the financial contagion in Europe can be contained, but the strategic and political contagion will be immense.
It may be that the financial contagion in Europe can be contained, but the strategic and political contagion will be immense. Unless it also leaves the EU, Greece may become an open door, as some Syriza ministers have already threatened, through which migrants pour in. The country will drift even more into the Russian orbit, with potentially fatal consequences to the EU’s common foreign policy, especially its sanctions over Ukraine. Above all, the irreversibility of monetary union will be called into question, with huge implications for all kinds of political and economic bets placed over the past three decades. No amount of modeling can quantify the likely damage to the union, but it will be colossal and perhaps fatal to deeper integration.
Either way, the Greeks are faced with an impossible choice: either to agree to an austerity program that is crushing the life out of its young people and its weakest or to return to the failed national politics that got the country into this mess. The world will soon know the answer on G2K, but whatever it is, as we contemplate the ruin of one of Europe’s nations, we should remember that Europe is neither a system nor a game, but a common destiny, and we should wish a plague on all those in Brussels and Athens who have brought us to this pass.