Crisis of Command
America’s Broken Civil-Military Relationship Imperils National Security
When the radical leftist party Syriza won a victory in snap elections in Greece in January 2015, many observers hailed it as a major challenge to the politics of austerity in the eurozone and to Germany’s hegemony in Europe.
Fast-forward a few months: An intense five-month negotiation led to a cliffhanger, with Greek banks shutting down, a snap referendum in which a large majority rejected austerity, and a Grexit seemingly closer than ever. And then, Greece’s government pulled a 180 degree turn and accepted a new bailout deal, one that extends the fiscal adjustment and structural reforms that were part of the previous deals and provides for extensive supervision by the European Commission, the European Central Bank, and the IMF (with the addition now of the European Stability Mechanism). What is more, the Greek parliament approved this package with an unprecedented and overwhelming majority. The decision met with a notable absence of social unrest.
The latest episode in the saga is yet another snap election, set for September 20, this one following the resignation of Greek Prime Minister and Syriza leader Alexis Tsipras.
To understand why and how the government reversed course and what will happen next, it is worth reexamining three critical moments: when, in October 2014, former Prime Minister Antonis Samaras failed to live up to the terms of the second bailout; when, in January 2015, a snap election propelled a young and untested radical leftist politician, Tsipras, into power, followed by a protracted negotiation between Greece and the eurozone; and when, in July of the same year, a referendum in Greece threatened to blow up the common European currency but led instead to Tsipras’ capitulation.
On May 24, 2014, Greeks went to the polls to select representatives to the European parliament. The vote was considered to be a test for the coalition government made up of the center–right party New Democracy and the center–left party PASOK, which had ruled Greece since the summer of 2012. The government, under Prime Minister Antonis Samaras, failed. The coalition polled only 22.71 percent of the vote. Syriza, which, in the 2009 European parliamentary elections had polled a mere 4.16 percent, won 26.58 percent. The result signaled that Syriza was poised to come to power the next time Greece held a national parliamentary vote.
Samaras’ defeat reflected a widespread dissatisfaction not just with austerity in general, but with a widely hated property tax in particular. The proportion of people who own their own homes in Greece is higher than in most other European countries, and so an emergency property tax first levied in 2011 but regularized since caused a mass defection among New Democracy’s core voters. Samaras, spooked by the election, reshuffled his cabinet, replacing several reform-minded ministers with more populist but less competent ones. That decision would come back to haunt him; it failed to gain him favor among the electorate and caused considerable irritation in many European capitals since it signaled an early end to the government’s reformist drive.
Samaras’ panic was ill-timed in another way. Despite the unpopularity of his economic policies, they were beginning to bear fruit. For the first time since 2009 Greece was growing again; it had also, against all expectations, successfully tapped the financial markets, issuing its first bond after the infamous haircut that it had imposed on private investors in 2011. Even better, Greece had built up a small budgetary surplus (with tax revenues exceeding public spending, excluding debt interest).
The public, of course, was understandably still concerned. Samaras thus decided to place a second bet on extricating Greece from the strict conditionality of his Troika creditors (the European Commission, the European Central Bank, and the IMF) and relying instead on the financial markets for the refinancing of the country’s debt. If he could claim that he got rid of the Troika and its annoying constant oversight of the Greek economy, then he could go back to the people and demand a new mandate with reasonable chances of success.
Before he could fully break from the Troika, though, he needed to obtain the last tranche of the bailout worth 7.2 billion euro (over $8 billion). The following year, Greece faced several big debt payments to the ECB and the IMF, and Samaras doubted that he could win enough cash from private creditors fast enough to cover the expense. To get the third tranche, however, Greece needed to pass a major Troika review, which was not an easy task because of a backlog of obligations, including reforms to taxation, pensions, labor, banks, and regulation, among others. The Greek government sought to show its willingness to hit the benchmarks and win the third tranche at a summit in November. But talks failed. Samaras then went to Berlin for help, where he got a cold shoulder from Chancellor Angela Merkel.
Why did the Troika and Germany fail to help him? There were several reasons. First, Samaras’ gambit had been hastily prepared. Second, his U-turn following the European parliament elections, his unwillingness to implement the measures to which he had already agreed, and a series of other decisions (including his alleged interference with the Greek Tax Authority and the forced departure of its director), had convinced the Troika that Greece was trying to delay important reforms while attempting to get away from its controls. Third, the European Union knew that Greece was due to hold a parliamentary vote to elect a new president in February. If the vote failed to produce a conclusive result, the outgoing president would have to call a snap election, which, EU officials believed, he would not win. The eurozone thus saw Samaras as a lame duck. Fourth, the Troika was not opposed to a Syriza victory. Despite its radical message, the party appeared to be unconnected to vested interests and, therefore, possibly more open to structural reforms.
When Samaras’ failure to obtain the last tranche of the bailout became publicly known, Greek bond prices plunged. That destroyed Samaras’ last hope for political survival—his ability to rely on financial markets to finance Greece’s debt. With few prospects, he decided to move the looming presidential vote, due in February, forward to December. The opposition effectively sabotaged the procedure by voting down Samaras’ proposed candidate and refusing to put forth an alternative one, thus triggering a snap election, called for the end of January.
It is impossible to know whether Samaras could have achieved a different outcome had he followed a different strategy. However, three points are worth underlining. First, Greece suffered from a terrible political calendar, with potential opportunities for new elections coinciding with critical political junctures and generating new opportunities for economic uncertainty. If Samaras had the luxury of two more years ahead of him, he could have avoided his fatal policy turn. Second, the Troika proved to be a tough partner, willing to sacrifice its political allies when they wavered and to take the risk of ushering in a radical leftist party. Third, Samaras’ swings between compliance, reform, revolt, and populism failed to win over the public. A careful opposition leader could have learned from Samaras’ mistakes. Tsipras was not that leader.
On February 21, facing a growing bank run and with the negotiations nowhere near concluded, the Greek government settled for a four-month extension of the bailout agreement, something it had ardently proclaimed it would never accept.In the January 2015 snap election, Syriza garnered 36.3 percent of the vote. Tsipras had won by promising an end to economic pain: Austerity would come to an end along with the hated Troika. At this juncture, he faced the following choice: quickly take a somewhat improved deal that the Troika looked likely to give him as a measure of good faith and then focus on governance, including renewed attention to the kinds of administrative and regulatory reforms that could have restored stability and keep the Greek economy on its upward trajectory. Or, he could insist on his radical anti-austerity agenda and fight until the end: a highly risky strategy. The endgame could be either a much better deal for Greece or a default on its debt obligations and an exit from the eurozone. In the end, he ended up following a third route: a U-turn after long and economically very costly negotiations.
The negotiations were long, complex, and despite unprecedented media coverage and attention, largely opaque. They covered a variety of issues, with the debt situation getting the largest share of coverage. The sustainability of Greek debt was a matter of particular concern because, despite a substantial haircut in 2011, it had exploded while the country’s GDP had contracted, reaching a nominal value of close to 170 percent of GDP by 2015. However, another debt haircut was quickly ruled out by Greece’s creditors because it would have to be imposed on the taxpayers of the eurozone member states. As the president of the conservative European People’s Party, Manfred Weber put it, the debt reduction sought by Greece would not hurt bankers but “nurses in Slovakia and civil servants in Finland.”
When it became clear that an explicit debt haircut was not on the table, the Greek government was surprisingly quick to acknowledge the point. The negotiations quickly moved to a set of different issues, including the size of primarily surpluses that the Troika expected Greece to achieve, structural reforms it was expected to implement, and fiscal measures it needed to adopt, down to size of the Value Added Tax (VAT) to be imposed on the Greek islands. Several issues were connected with Greece’s obligation to conclude its bailout program, including a review of its performance and the disbursement, contingent on the review, of the long-delayed last tranche, which Greece desperately needed in order to fulfill its debt obligations to the IMF and the ECB.
On February 21, facing a growing bank run and with the negotiations nowhere near concluded, the Greek government settled for a four-month extension of the bailout agreement, something it had ardently proclaimed it would never accept. The terms of that deal included mostly cosmetic changes: vague language about Greece honoring its debts and conducting sweeping pro-market reforms. Eurozone officials also hinted at future fiscal flexibility and renamed the Troika as “The Three Institutions,” which allowed the Greek government to claim that it had gotten rid of the Troika. The plan was for Greece to complete the pending review of the bailout agreement under existing rules of conditionality before engaging in a discussion about its future needs.
However, by agreeing to the four-month extension, Greece got no new money and reaffirmed the conditions on the old debt. It was left alone to face the pressure of having to meet a rolling series of debt payments to the IMF and ECB. Many observers believed that February would be a turning point. Tsipras, they thought, would have to complete his U-turn and come to a comprehensive agreement with the renamed Troika that would rescind his radical credentials. It quickly became apparent that he had no such intentions. Instead, he refused to let Greece be reviewed by the Troika staff and effectively dragged his feet.
At this point, of course, Greece was not the only party feeling the heat. The eurozone also feared a Greek default, which could have triggered a “Lehman moment” with unknown but potentially dire consequences. That fear turned out to be the linchpin of the Greek government strategy, which was designed (or at least inspired) by finance minister at the time, Yanis Varoufakis. In a nutshell, Varoufakis aimed to push Greece as close to default as possible (perhaps even into default within the eurozone, a prospect that was tantalizingly close to Grexit) so as to generate enough market panic to force the eurozone to capitulate. To achieve this goal, he had to gain time, which explains his temporizing tactics and his fanciful proposals (including, most notably, the idea of wiring foreign tourists in Greece in order to catch tax-evading merchants on the act).
No other figure epitomizes this period of interminable negotiations, punctuated by a never ending succession of European-level meetings, more than Varoufakis. A flamboyant academic who had gained some notoriety through his blog and public appearances once the Greek crisis erupted, he quickly became a global media darling on account of his unconventional fashion choices and his incessant and flashy public presence, which included both arcane policy pronouncements and extravagant pictorials in lifestyle magazines.
When the negotiations began, there was a lot of talk among Syriza politicians about setting up a coalition of debtor nations within the eurozone that would band together to demand a relaxation of stringent fiscal policies, a renegotiation of debt, and perhaps even a debt mutualization across the 19 members of the eurozone. There was considerable support for such a move among emerging anti-austerity parties in Europe, most notably in the rapidly rising Podemos party in Spain. This prospect, too, quickly crumbled as the other eurozone member states banded together against it. This group included Germany of course, but not only. France and Italy, which believed they had too much to lose by challenging Germany, joined in as well as a group of small but high-performing economies, such as the Netherlands, which didn’t like the idea of giving in to supposedly irresponsible nations; but also small and poorer members, such as the Baltic states, Ireland, and Portugal, that had already successfully implemented fiscally painful measures.
In short, the negotiations provided a unique perspective on the political dynamics of the eurozone: what carried the day was not just Germany’s will, but the converging preferences of its member states.To top everything, Varoufakis proved to be a poor negotiator. His self-centered (some would say narcissistic) personality, his confusing and bombastic statements (including his assertion that he tape-recorded all Eurogroup meetings), his lack of experience (he had never held public office before), and his polarizing inclinations, quickly alienated his counterparts and turned them against him—and by extension against the country he represented. Things came to a head during the April 24 Riga Eurogroup meeting, where his isolation became public, thus forcing Tsipras to sideline him. But the damage was done and it was now clear that Greece was not only up against Germany, but all 18 eurozone states.
In short, the negotiations provided a unique perspective on the political dynamics of the eurozone: what carried the day was not just Germany’s will, but the converging preferences of its member states. In turn, these preferences were shaped by the eurozone’s coalitional dynamics, as well as the European Union’s political style, one stressing slow consensus building and abhorring radical ruptures.
The Greek government managed to confound most observers by meeting its debt repayment schedule up until the end of June. It did so by collecting every cash reserve available to it, even twisting IMF rules in early June and postponing its payment until the end of the month. But time was really running out.
By mid-June, it was increasingly clear that Greece was short of cash and that it would fail to meet two major and critical debt repayments to the IMF and the ECB in July. As a result, many observers thought that a deal was imminent, with Tsipras performing his (by then) widely expected U-turn.
Then, on the evening of June 27, Tsipras returned to Athens from a meeting in Brussels with a huge surprise in his luggage: He announced a referendum, to be held on July 5, a little more than a week away. The question to be submitted to the Greek people was whether to approve or reject a proposal that had been offered to the Greek government by the Troika (and which the Troika claimed it had since withdrawn).
Suddenly, everything was up in the air. The global media went into a frenzy. No one knew for sure what Tsipras intended.
Some argued that both Tsipras and Varoufakis called the referendum to lose it—that is, they hoped for the Greeks to vote “Yes” to the creditors’ proposals. This way, they would not have to bear the moral and political cost of a U-turn. This interpretation, however, is doubly puzzling. For starters, politicians prefer winning over losing, even if the cost of winning is high. (After all, Tsipras would have been much better off if he chose not to provoke a snap election in January, and instead waited in the wings while the Samaras government took all the hard decisions that were necessary to conclude the bailout agreement in 2015.) Second, after a few days of hesitation, Tsipras actively campaigned in favor of the “No” option, a course of action hardly compatible with the view that he was secretly hoping for a “Yes.”
Whatever his motives, the situation on the ground took a definite turn to the worse. First, a bank run that was already taking place intensified, causing a deposit flight reaching up to 40 billion euros (over $45 billion) and depleting the Greek banks’ reserves. Second, with the Greek bailout program extension coming to an end and the negotiations effectively on a hold, the European Central Bank, which was keeping the Greek banks alive, decided it could no longer extend the lifeline. Faced with the prospect of the banks running out of cash, the Greek government called a bank holiday and, on June 29, imposed stringent capital controls, restricting the amount of cash available to Greek households and business, effectively choking the economy. Then, on July 1, after requesting and failing to receive emergency aid from the eurozone, Greece missed a 1.55 billion euro ($1.75 billion) payment to the IMF and became the first developed nation to default on a loan the IMF. This raised the likelihood that it would then default on its loan from the ECB, whose installment was due on July 20. If Greece defaulted, the ECB could no longer support the country’s banks. Eventually the government would have needed to print IOUs in order to pay salaries and pensions, and before long it would be forced to print its own currency, thus abandoning the euro.
For a few days, it seemed like Greece was about to opt for the Grexit option. The referendum campaign was highly polarizing, and Tsipras proved adept at mixing defiant nationalism with leftist radicalism, attacking Greece’s creditors in a language that was reminiscent of political leaders like Hugo Chávez. We know now that Varoufakis was working behind the scenes to implement a plan that would have bypassed Greek banks by issuing euro-denominated IOUs, applying a “haircut” to the bonds Greece issued to the ECB in 2012, unilaterally reducing Greece’s debt, and seizing control of the Bank of Greece away from the ECB—moves that would lead to Grexit, unless the eurozone capitulated. Varoufakis was confident that only by making Grexit possible could Greece win a better deal. At the same time, it later transpired, the radical wing of Syriza was planning on its own to arrest the governor of the Central Bank of Greece, empty its vaults, and appeal to Moscow for assistance!
On July 5, in this frenzied atmosphere, with the banks shut, the economy paralyzed, and the eurozone telling Greece that a “No” vote was a vote for Grexit, Greek voters turned out overwhelmingly in favor of “No” (61.31 percent versus 38.69 percent). In fact, it was by no means a vote for Grexit, because Tsipras had convinced Greek voters that this option was clearly off the table. But it certainly gave the government the mandate to undertake bold actions. But exactly what kind of bold actions? To the surprise of most observers, his first decision following the referendum, on the very night of his victory, was to sack Varoufakis.
This time, Tsipras folded. He realized that the eurozone would not blink.The reason is that, in the end, the international markets had failed to panic. In retrospect, this should not have come as a surprise since, unlike in 2010, the collapse of Greek bonds had not affected the prices of the other eurozone debtor nations’ debt. Clearly, the markets thought this renewed Greek crisis was idiosyncratic rather than systemic. Varoufakis, further, had miscalculated the eurozone’s resolve. For even if Grexit threatened the stability of the common European currency, caving in to Greek blackmail would have destroyed the euro’s very foundation. Indeed, the eurozone not only called Greece’s bluff, but doubled down. In the first European summit meeting following the referendum, Greece was handed an ultimatum: take the deal that was on the table (which, because of the costs induced by the closing of the Greek banks, had become much more painful) or leave the eurozone. Apparently, the German Minister of Finance Wolfgang Schäuble even came to the meeting prepared to hand over Greece 50 billion euro ($56 billion) if the Greek government chose to take the country out of the eurozone.
This time, Tsipras folded. He realized that the eurozone would not blink. Grexit was likely to hurt Greece much more than the eurozone: It would usher economic chaos and social unrest on a massive scale in Greece, leading to economic collapse as the new drachma would quickly lose most of its value. Greece relies on imports of food, energy, and medications; tourism, its cash cow, requires considerable energy inputs along with social peace. Things would turn much worse before they improved, and Tsipras would probably not likely survive politically in the meantime. And so he took the deal that was on the table. The sacked Varoufakis turned against Tsipras, accusing him of having “made a decision on that night of the referendum … to surrender to the Troika.” But the truth is that Varoufakis’ bluff had been called in a way that could hardly have been less ambiguous and that the alternative to taking the deal was far worse for Greece.
Following Tsipras’ capitulation, things moved swiftly. The new bailout plan, comprised of both painful fiscal adjustment measures and many necessary and delayed structural reforms (but with lower primarily surplus targets reflecting the dismal state of the economy) was rapidly approved by the Greek parliament with an overwhelming majority of 222 out of 300 votes. It was the highest support such a plan had ever received, which is ironic, because it is also the most painful one.
All in all, this was a remarkable development, and it hit Syriza hard. The party swiftly split into two, with more than a quarter of its 149 lawmakers (including Varoufakis) refusing to endorse the bailout package and thus forcing Tsipras to rely on the pro-European opposition parties to get the required legislation through the parliament. Eventually, most of these rebels left the party to set up a new radical group called Popular Unity, which took up the mantle of the anti-austerity struggle with an explicit emphasis on Grexit.
For his part, Tsipras could form a new government in coalition with the pro-European opposition parties or call a new election and consolidate his control on his own party now purged of the dissenters. He quickly opted for the latter and resigned on August 20, thus triggering a snap election. He had three reasons for his choice.
First, and despite his wild U-turn, Tsipras had been able to initially salvage his substantial popularity among the Greek electorate. He made the case that the painfully long and acrimonious negotiations that he presided over were ample proof that he fought tooth and nail to get a better deal for the country and that his defeat was due to the enormous pressure he faced and the power differential between Greece and Germany. “You can accuse me of many things,” he argued, “that I had illusions that this Europe can be defeated, that the power of what’s right can defeat the power of banks and money. But you cannot accuse me of lying to the Greek people.” Following this logic, the referendum was further proof of his commitment to the Greek cause, not an indicator of his negotiating incompetence.
Second, by moving swiftly he made it nearly impossible for the opposition and, most importantly, the Syriza rebels, to organize for a vote on time. Lastly, and perhaps most importantly, he calculated that the pain of botched negotiations, capital controls, and the new bailout would not be felt early enough to hurt his electoral fortunes.
Even so, that pain will be enormous. Before Tsipras came to power, Greece had just started being able to tap international bond markets again after four years, banks were solvent after having been recapitalized at a high cost for Greek taxpayer, unemployment was falling, and the country was growing again. In the fourth quarter of 2014, it hit 1.7 percent growth, a rate substantially higher than the 0.9 percent euro area average. It was projected to reach as much as three percent in 2015. Of course, the Greek economy was far from being out of the woods, yet these achievements were a starting point. Now Greece is back into recession, one projected to last for at least two more years and amount to a four percent loss of GDP. Unemployment is spiking again and markedly. Greece’s Purchasing Managers’ Index (PMI), the leading indicator of economic sentiment and an excellent predictor of future GDP trends, has plunged to depths never reached before.
All this might catch up with Syriza before the vote. The first few public opinion surveys that were conducted after the elections were announced show a considerable erosion of Tsipras’ popularity and of the difference between Syriza and New Democracy. Syriza is losing support both on its left, being abandoned by voters who blame it for having capitulated, and on its right, where voters blame it for not having capitulated early enough. It now looks unlikely that it will win enough votes to form a government of its own, which will force it to form a coalition government. With his hard-right coalition partners, the Independent Greeks, struggling to pass the three-percent threshold that is necessary to gain parliamentary representation, Tsipras may have to partner up with the pro-European opposition. Whatever the case, the new government will have to weather one—possibly two years—of acute economic pain, a substantial challenge even for a highly skilled politician.
So how can Greece face up to the challenges ahead?
There are three possible paths. In the first and most optimistic one, Tsipras (assuming he comes up first) decides to own the bailout, manages to weather the political effects of the economic pain, implements structural reforms that generate positive economic results, and succeeds in turning Greece around, thus winning the lasting esteem of the Greek people. In the second one, he hesitates and temporizes, suffers public opprobrium for the economic disaster he has caused, and eventually falls from both grace and power, suffering a political humiliation in the midst of enduring economic stagnation. If, on the other hand, he fails to come up first, he will have failed much earlier than even his most committed detractors had imagined.
Three issues—fiscal adjustment (“austerity”), debt, and structural reforms—will be key for determining how Greece fares in the near future. For starters, observers need to understand why the Troika is so keen in imposing such tough and painful fiscal targets. Some argue that it is because Germans have a moral aversion to deficits, even when deficits might be economically necessary, as argued by Keynesian economists. It is correct to say that the fiscal targets imposed on Greece were tough, much tougher than any government with the ability to finance its own deficit would reasonably choose. However, there are two things to keep in mind. First, the Greek government was shut out of the capital markets and lacked the ability to refinance its debt. The fact is that only the implementation of a tough and painful fiscal adjustment program can convince these markets to start lending to Greece again. Of course, Greece could default, but as we saw, defaulting while being a member of a currency union like the eurozone, is extremely costly. Second, until Greece is able to gain access to the capital markets, its only financing comes from a union made up of 18 other governments, each one accountable to their own taxpayers. In other words, the eurozone’s institutional setup trumps German ideological proclivities.
A related issue is whether the imposition of austerity is economically self-defeating and politically infeasible, as is often argued. On its face, Greece’s dismal performance since it was first rescued in 2010 appears to be indisputable evidence for this argument. But there are confounding factors here: Greece implemented many of the measures to which it agreed incompletely or not at all, and its performance was repeatedly hurt by the uncertainty brought about by the prospect of a catastrophic Grexit as well as the instability induced by repeated elections. When comparing Greece’s performance with that of other member states that took the same bitter medicine, Greece’s awful performance stands out. As for political infeasibility, suffice it to point to the impossibly large parliamentary majority that backed up the third bailout. Of course, Greece faced constraints, but constraints define the realm of what is feasible and what is not.
Among commentators and pundits, the issue of the debt has attracted the lion’s share of attention. Indeed, the IMF in particular, is very concerned about the sustainability of such a high debt burden, and has been at odds over this matter with its two other partners in the Troika: the European Commission and the European Central Bank. Nevertheless, the debt is a bit of a red herring. Greek debt is unusual in that it is primarily held by the other member states of the eurozone (along with the IMF and ECB) rather than by private investors. As already mentioned, an explicit debt restructuring is politically hard to achieve. Nevertheless, servicing the debt is less onerous for Greece than its size suggests, because its real present value is much lower, and it carries long maturities and low interest rates. It is highly likely that the interest is likely to be further lowered in the future and the maturities extended. In other words, favorable refinancing is a more plausible route to debt restructuring than an explicit haircut, a point lost on those who are used to looking at traditional types of sovereign debt.
Lastly, as Harvard Professor Ricardo Hausmann has argued, Greece’s terrible economic performance after 2009, which has been much worse than that of Cyprus, Ireland, or Portugal, has little to do with its excessive debt burden and more with the distortions affecting the Greek economy: Greece produces very little of what the world wants to consume. The bottom line is that it needs to develop its productive capabilities if it wants to grow, and that requires the right mix of structural reforms implemented in an effective way. Whether Greece manages such reform remains to be seen, but it is increasingly unlikely that it will be Tsipras’ battle.
Paradoxically, this crisis has strengthened the euro, forcing both German conservatives and Southern European leftists to converge on their second-most preferred policy outcome, namely a eurozone with highly conditional transfers of money.BY DESIGN
Many commentators lashed out at the eurozone for its policy preferences and harsh negotiating tactics. The economist Paul Krugman, for instance, castigated Europe’s leaders for their willingness “to humiliate anyone who challenges demands for austerity without end” and argued that “If Europe as currently organized can turn medium-sized fiscal failings into this kind of nightmare, the system is fundamentally unworkable.” Likewise, many commentators suggested that the way the eurozone treated Greece constituted a defeat for both democracy and the European integration project. Indeed, a trending hashtag on Twitter during the heady days of July was #itsacoup.
Such criticism overlooks some key aspects of the European project and the common currency. To begin with, the eurozone is not a state, let alone a democracy, but a union of democratic states that have chosen to sacrifice an important portion of their sovereignty in favor of a common project. In such a union, unilateral decisions at the national level, no matter how democratically they have been arrived at, cannot determine policy decisions at the union level. This is not to say that the Greek crisis didn’t reveal major issues of EU democratic legitimacy. It did. Yet, these are issues of institutional design rather than of political leadership and as long as the level of decision making does not overlap with the level of mass democratic deliberation, such issues will persist. They will only be overcome, when democracy emerges at the union level—that is, when the union is transformed into something transcending its member states. Such an outcome remains possible, but is unlikely in the near future. Does this mean that the European integration process is doomed?
Not necessarily. Paradoxically, this crisis has strengthened the euro, forcing both German conservatives and Southern European leftists to converge on their second-most preferred policy outcome, namely a eurozone with highly conditional transfers of money. Indeed, what keeps the eurozone united is less a positive belief in the content of the integration project and more a realization that the cost of unilateral defection and collective failure are likely to be enormous. Furthermore, the Greek crisis brought to the surface glimpses of an emerging European Demos. Hundreds of media outlets provided close coverage and commentary of event, and thousands of individual citizens from across Europe participated in a heated debate that cut across national borders. At the height of the crisis, on July 8, the European Parliament saw a remarkable session in which Tsipras sat for a spirited debate with European parliamentary leaders about the very nature and content of the European project. Remarkably, this debate suggested that the main political fault line in Europe transcended the Right–Left axis: Tsipras’ most ardent supporters were to be found not only among the radical left but also, and most notably, within the far right, among the likes of Marine Le Pen and Nigel Farage. Naturally, observers tend to fixate on the lack of a positive vision and the prevalence of political acrimony. However, no one should disregard the fact that new political entities are seldom forged in the absence of conflict.
Indeed, it could be argued that the way in which the parties came to this consensus is precisely how the European integration project was designed in the first place. After all, spontaneous and ungrudging transfers of power from national to supranational entities are politically unlikely. In the past, such transfers of power used to take place almost exclusively through war and violence. The fact that, in Europe today, they are managed through nonviolent conflict, that is, through political crises and harsh negotiations should be taken as evidence that the European project is working, not failing. Whether it will eventually succeed is an open question, but then political experiments on the scale and boldness of the European one are always fraught with considerable risk.