Deal Would Be a First Step in Rebuilding Trust

by Simon Nixon

Wall Street Journal
February 13, 2012

When trying to follow the twists and turns of the euro crisis, it is worth bearing in mind two journalistic adages. First, focus on what politicians do and not what they say. Second: "Follow the money." This has been particularly true of the protracted negotiations over Greece's second bailout, which reached a climax with riots in Athens Sunday as parliament debated a tough new austerity package demanded as the price of the €130 billion ($172 billion) package. Making sense of what is going on is hard amid a stream of seemingly irreconcilable demands, ultimatums and contradictory comments by politicians in Greece and across the euro zone—until one remembers that much of this is political theater designed to appeal to domestic political audiences. When it comes to action, the politicians have ultimately acted in their national economic self-interest.

This goes for politicians in rich countries like Germany as much as it does for debtor states like Greece, Italy, Spain, Portugal or Ireland. For most of the last two years, the euro zone has done what is necessary to prevent a catastrophic collapse of the euro zone while seeking to avoid rich countries having to take responsibility for the debts of the corrupt, unreliable and unreformed economies of Southern Europe. This approach, which many argue has been too slow and inadequate, has been entirely rational. For rich European countries, it makes economic sense to preserve the euro, but not if the price is to write blank checks in perpetuity to countries whose political systems can't be trusted. It follows that the key to resolving the crisis isn't expanding bailout funds or devising clever European Central Bank programs but creating the conditions for trust.

This is what has made the Greek situation so toxic. The Greek political system doesn't—and has never—inspired trust. For over a decade, the country concealed the state of its finances. Much of the country routinely cheats on its taxes. For the last two years, much of the Greek political class seemed to think it could hold the euro zone to ransom, believing other member states would pay any price to keep Greece inside the euro. The leader of the Far Right Laos party resigned from the government Friday arguing Greece should reject the terms of the bailout since the euro zone would never allow it to default.

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