Avoiding a messy divorce

As a former U.S. Ambassador to Greece and senior official at NATO, I have become increasingly concerned that, in spite of some momentary respite, the marriage of Greece and the eurozone is headed for a divorce based on “irreconcilable differences.” Politicians and diplomats adeptly craft agreements and statements that can temporarily paper over deep differences, but these dissolve in the absence of a common understanding or the support of political constituencies.

The agreement reached recently in Brussels allows Greece – for now – to remain in the eurozone. But it does nothing to change the underlying fundamental difference between the Greek voters, who demand an end to harsh budget and tax policies, and German and other European voters tired of footing the bill for a bailout. Greeks have reached their limit, with the past two governments – a center left and a center right – each having done as much as they possibly could before collapsing under the weight of the economic hardship being experienced in the country. And the current constraints allow no real prospects for a significant improvement in the near term for most of the Greeks suffering from an economic collapse on par with the Great Depression in the United States.

Berlin believes they can weather a Greek exit, and this should concern Washington. Greeks will not walk away from the euro easily, and a forced exit will likely push Greece to a more nationalistic stance – with potential implications for a broad range of economic and national security issues that could affect both Europe and the United States.

EU leaders, along with the European Central Bank, have spent the last four years building economic defenses in case of a Greek default and exit from the eurozone. Representing about 2 percent of the eurozone’s economy, Greece in isolation was never a threat on its own. However, concern over contagion to other weak economies and to the European banking system more broadly pushed the European Central Bank President Mario Draghi in the summer of 2012 to say the bank was ready to “do whatever it takes” to preserve the euro. At the time his statement seemed to put to rest the idea of a eurozone exit. But now the signals from the European Central Bank indicate that they are ready to let Greece sink if they can’t reach an accommodation with the European creditors, which means first and foremost Berlin.

So far, the new radical-left Greek government has played nice on political and security issues to avoid upsetting the economic negotiations. That attitude would likely change following a Greek exit. As a member of both the EU and NATO, Greece could become a real obstacle to crafting a united U.S.-EU approach to a whole host of international challenges, including security concerns coming from Ukraine and the Middle East, and create problems for cooperation on counter-terrorism, trade and commercial issues. A lot is at stake. And even if the Germans are right that the eurozone can weather the exit of one of its members, they are underestimating the political challenges that could result. Rest assured the Russians are salivating at the prospect of strengthening their cooperation with a disaffected Greece and using them as a Trojan horse in the EU and NATO.

Washington has consistently pressed the EU to be flexible in finding solutions to support Greece. U.S. officials have understandably taken a back seat, leaving it to Europe to find a solution to its problems. But now, as an ally of both Europe and Greece, the Obama administration should take an active role in helping find a way to avoid the dead-end our partners are driving toward. 

Focusing on going after the tax evaders and the wealthy will not be a successful strategy for Greece’s new government to meet its financial targets. And the Germans will not, it appears, budge from their single-minded focus on requiring Greece to meet its obligations, irrespective of the impact on economic growth. 

Given the strategic political and economic interests at stake, the United States needs to move into the co-pilot seat to help shift the current dynamic and move it onto a track with a chance of success. If we don’t, we will pay in many other ways for years to come.

This piece was originally published in U.S. News and World Report