Opinion

The rising price of Greece's Eurozone membership

If the latest rescue European leaders negotiated with the Greek government had a slogan, it would be "Don't let Greece be Greece."

The seven-page statement about the agreement opens with this statement: "The Euro Summit stresses the crucial need to rebuild trust with the Greek authorities as a pre-requisite for a possible future agreement on a new [bailout] programme." It goes on to outline what it would take to rebuild that trust, including short- and longer-term steps to change fundamentally the role Greece's government plays in its citizenry's daily life.

Pundits have focused on how difficult it may be politically for Greek Prime Minister Alexis Tsipras to persuade the Greek Parliament, where Tsipras' leftist Syriza party has a near majority, to enact the changes that the agreement requires to be made within 10 days. These include two steps that 61% of Greek voters rejected just a few days ago: raising the tax on goods and lowering pension costs. Also included are "quasi-automatic" spending cuts if certain budgetary targets aren't met and overhauling the justice system to resolve commercial disputes faster and at lower cost.

If the Greek Parliament makes these changes, a new round of negotiations will begin over extending the bailout. For these negotiations to be successful, however, the letter lays out nine additional steps that Greece must take. These are more telling because they seem to go beyond making the numbers pencil out. Instead, they tell Greece to act more like the other, fiscally stable European Union countries to the north.

You might think that the EU would have done that before it adopted a common currency, committing the region to a common monetary policy. That approach prevents individual countries with struggling economies from trying to stimulate growth — or inflate their way out of debt — by printing more currency.

The 19 nations that adopted the euro, however, did not adopt a common fiscal policy. Taxing, spending and borrowing decisions were left up to each member, which in Greece's case turned out disastrously.

Now the Euro Summit has no more appetite for Greek fiscal autonomy. The demands laid out in the summit's letter include eliminating deficits in the government pension fund, eliminating certain business regulations and barriers to entry, privitization of a key electric utility and other government-owned assets, bringing labor laws into line with other EU countries', and slimming the Greek bureaucracy and reducing political patronage.

Beyond that, the letter calls for the Greek administration to vet its fiscal proposals with international credit agencies before submitting them to lawmakers. Call that the "Mother may I" clause.

Although the demands won't fly well with Greeks who've tired of austerity, this faction should keep a couple of things in mind.

First, the long leash initially provided to countries in the Eurozone was predicated on the idea that each would be fiscally responsible. Other EU countries managed to devote significant portions of their gross domestic product to government services and payrolls (or, in pejorative terms, "the welfare state") without sinking into ruinous debt. Greece demonstrably did not; its practice of borrowing money to cover recurring costs was a financial bomb just waiting for a trigger, which the subprime mortgage loan fiasco provided. Given that Greece hasn't shown it could navigate the fiscal waters safely on its own, it makes sense for the rest of the Eurozone to tighten its leash.

Second, there's no shortage of other EU countries that would be happy to see Greece drop the euro and fend for itself. With so much of Greece's debt now held by international credit agencies and the European Central Bank, banks in Germany and other northern European nations don't have nearly as much to lose if Greece exits and tries to inflate its way out of the crisis. But Greeks do; the price hikes and cash shortages triggered by such a move could be devastating.

Third, shortly after voters swept his Syriza party into power in January, Tsipras negotiated a new bailout deal -- then claimed the deal relieved Greece of the obligation to enact some previously promised reforms. These included pension cuts and tax increases that look much like what Greece has now agreed to enact with Hermes-like speed. Add in the fact that Tsipras undermined EU negotiators last month by calling for a referendum on their bailout offer, then campaigned against the offer and now is promising to live up to even tougher terms, and it's clear why the rest of the Eurozone worries about leaving Greece in charge of its own affairs.

Follow Healey's intermittent Twitter feed: @jcahealey

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