Watching a modern Greek tragedy

by Michael Schuman

Time
June 17, 2011

We all recall from our high school literature classes that the Greeks are especially adept at the art of the tragedy. We can see that expertise playing out in Athens today. The government of Prime Minister George Papandreou is fighting for its life as the nation teeters on the edge of default and descends into violent street protests. He sacked his finance minister on Friday in an attempt to throw the mob a target of their ire and save his own neck. The leaders of Europe are embroiled in embittered disputes over how to resolve Greece's debt problem before it drags its neighbors and perhaps even the euro into the toilet. (Some progress may have been made on Friday when German Chancellor Angela Merkel signaled her willingness to compromise on the main point holding up a new bailout -- whether private creditors of Athens should face a debt restructuring.) The Greeks' plight is a tragedy on so many levels, it is hard to know where to begin.

Let's start, though, with how Greece got into this mess – a drama of the multiple failings of European leadership. Greece probably should never have been allowed to join the euro zone in the first place due to its long history of financial irresponsibility, but Europe's great experiment with monetary union has been propelled more by politics than economics. Once in the union, Greece's politicians took advantage of the stability it brought not to reform and improve competitiveness but to amass debt at low rates of interest to fund a bloated and pointless civil service. Meanwhile, the rest of Europe turned a blind eye, lacking the political will to follow the very rules they designed to prevent emerging crises the Greeks were in the process of creating. Then after the financial crisis, when the depth of the Greeks' debt woes became all too apparent, Europe's leaders dithered again, delaying action until the debt crisis had already raged around Europe. Even when they finally did something – with an EU/IMF bailout in May 2010 – the euro zone leadership failed to heed warnings that the rescue plan was still falling short of what Greece needed. In other words, at every step in Greece's experience with the euro zone, it exposed the tragic flaws built into the design of the monetary union.

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