Yiorgos Karahalis/Reuters
Last Friday, as leaders in Europe squared off over a high-stakes bailout for Greece, Robert Mundell, the Canadian-born economist widely regarded as the father of the euro, was in Bulgaria attending the world chess championship. It’s been more than 40 years since Mundell laid out his vision for a common European currency, work that earned him a Nobel prize in 1999. And after making the ceremonial first move of the match—akin to tossing out the first pitch in baseball—Bulgarian reporters asked the 77-year-old Columbia University professor to sum up the Greek drama in chess terms. Was Greece in check, or checkmate? In other words, does the country have any hope left, or is it game over? “I would rather describe the current situation as zugzwang,” Mundell reportedly replied, using the German term to describe the moment when a player is forced to make a move even when it’s going to be harmful. This financial game cannot finish with a checkmate, he assured. There won’t be a losing side.
If only it were that certain. The European debt crisis has shaken the region to the very core, pitting rich nations against poor, savers against squanderers and speculators against moribund economies. Last weekend, when the 16 European countries that have adopted the euro, along with the International Monetary Fund, finally agreed to a massive $146-billion bailout package for Greece, it was a desperate last ditch effort to stop the contagion from spreading to several other struggling nations, including Portugal and Spain. In exchange for the life preserver, Greece has been ordered to slash its bloated public service and hike taxes.
But this is about much more than just bailing out incompetent politicians and overpaid public servants in Athens. The way the Greek drama played out has made one thing blindingly clear: the last two decades of prosperity merely papered over the deep political, economic and cultural fault lines that still criss-cross Europe. Far from a seamless political and economic union built on the notion of a common currency, Europe remains a region marred by deep mistrust and resentment between countries.
Now, more than at any time since its creation, observers are openly talking about the end of the euro, and the way that could rip apart the fragile ties that bind the larger 27-member European Union. Looming ominously in the background is the continent’s dark history of conflict and strife. “A failure of the monetary union would call the whole European project into question,” Peter Bofinger, an economist and member of the government-appointed German Council of Economic Experts, wrote in the newsmagazine Der Spiegel last week. “European integration has made it possible to transform a continent that was devastated by wars into a place of peace and prosperity for over half a century. It’s not just money that is at stake today. It’s also a question of political stability in Europe.”
And, by extention, it’s a question of whether the fragile global economic recovery can continue. Europe is the world’s largest trading bloc, and it’s Canada’s second-largest economic partner after the U.S. If Europe tumbles into a financial crisis, it will undoubtedly make its way here.
This is the first real test for European integration. And it’s shown that Europe is not just broke, it’s dangerously broken.
When Greek Prime Minister George Papandreou went on TV to say his country had gone, Greek sailor’s cap in hand, to the IMF and its European partners for a bailout, he could well have been recording a tourism spot. He stood under sunny skies, with a row of riverside Mediterranean villas behind him. But the cheery landscape couldn’t have contrasted more with the dark warning he had for the nation. “We are at a historic crossroad to save the country,” he said. “The only red line my government has is not to allow the country to become bankrupt.” Unfortunately for the world, Papendreou’s urgent call for reform comes years too late.
Greece’s economy, which was a bloated, dysfunctional mess when it was allowed to adopt the euro in 2000, has only gotten worse. By some estimates, 20 to 30 per cent of people are employed by the government, many of whom automatically qualified for two-month bonuses in addition to their annual salaries. Workers in “hazardous” jobs, including both miners and musicians, get early retirement (50 for women and 55 for men). Meanwhile tax evasion and the black market is rife, robbing Athens of roughly $30 billion a year.
