Sunday, June 21, 2015

Greece and Germany Agree the Euro Can't Work

(Bloomberg View) Ahead of Monday's European Union summit, the only thing you can rule out is a happy ending. Whatever happens at the leaders' meeting -- even if a deal of some sort emerges -- the EU has suffered lasting and perhaps irreparable damage. The available choices run from bad to terrible.

The costs to Greece and to the EU of a default followed by Greece's ejection from the euro system could be huge. But even if the worst doesn't happen, Europe has suffered a total breakdown of trust and goodwill. That can't easily be undone -- and it's a dagger pointed at the heart of the entire project.

Two things, I believe, will strike historians as they look back on this collapse of European solidarity. The first is that the principals were able to draw such a poisonous dispute out of such an easily solvable problem. The second helps to explain why that was possible: Greece and its partners fell out thanks to a delusion they have in common -- the idea that sharing a currency can leave fiscal sovereignty intact.