It was always going to go down to the wire. The last-minute negotiations on a Greek bailout deal may finally find a way forward at today’s meeting of eurogroup finance ministers, but it has been a long and painful road which does not reflect especially well on either side. The turbulent events of the past few weeks have raised wider questions on the future shape and operation of the euro zone – very important ones – but for the moment the focus must be on getting the deal done.
Greece, in its package of proposals submitted to creditors late on Thursday, has gone a long way to meet what its creditors have been seeking. There will, no doubt, be coming and goings on the details of the package. But there should also now be an acknowledgement at political level that the Syriza-led government is serious about doing a deal and wants to stay in the euro zone. It is in the interest of both sides that this happens. A Greek exit would spell chaos for the country’s economy and its people, certainly in the short term. Regaining stability would be no easy task. A member state leaving the euro zone would also be a major setback for Europe politically and create significant economic risks. Euro membership would no longer be perceived to be irrevocable for any member-state.
However the deal must be done on sustainable terms. Further tax hikes and spending cuts will, inevitably, depress the Greek economy. Pro-growth reforms may help – but these kind of changes only bear fruit over a period of years. Greece also needs help through EU funds to support investment and, most importantly, through a realistic restructuring of its debt burden. Without this, the risk will be an ongoing cycle of cutbacks and low growth or recession.
Putting Greece back on the path to growth will be no easy task. What is important, at the outset, is that the plan that is put forward is credible and that there is a proper commitment on all sides to implement it. It will take time to get Greece’s financial system reopened. And its domestic economy faces many difficult challenges. But for the plan to have a chance to work, people both inside and outside the country have to believe that it it is realistic and sustainable.
The consequences of the Greek crisis may yet have a fundamental impact on the future of the European single currency. Keeping Greece inside the euro zone and helping it to adjust - on the basis that Greece also helps itself with necessary reforms – is not only the right thing to do, it also allows Europe time to try to shape this future. If Greece leaves, decisions may be forced in the face of market pressures, either now or in the future. Greece has shown that the euro zone is far from a finished project. However the priority now is to fix the urgent problem of doing a deal and keeping Greece in the euro.