Greece is the extreme basket case of the euro’s woes, so its apparent rescue from its creditors this week brought a sense of relief to people managing the crisis. The price of the breakthrough was costly both for private bondholders (in terms of their “haircut” in written-off bonds) and to the Greek people (who will have to bear even steeper cuts in payrolls and pensions).

Even at this price, Greece has only gained a breathing space. If a new crisis round is to be avoided next fall, Greece will need to use the coming months to start imposing even more sweeping painful changes (notably more deregulation in the labor market and the service sector).

And, of course, the problems (and the painful changes) are not confined to Greece. Other peripheral EU member states have similar troubles arising from their lack of international competitiveness; all of them failed to use the easy-credit years in the post-2001 “euro bubble” to start reforms before the 2007 crash. At same time, Germany and other hard-core eurozone countries failed to think twice about the imbalances being created by their zeal to sell exports to southern EU states. The southern Europeans’ buying spree partly reflected facile assumptions, on both end of the deals, that Germany would not let them drown in their own debt.

So changes are needed on all sides – as demonstrated by the brinkmanship bargaining involved in the bail-out deal finally struck this week. The bargaining outcome showed that majorities in all the eurozone countries want to stay with the euro. It also confirmed the core ideas, the drivers, of Europeans’ stategy for the recovery of their economies. The chosen remedies are fiscal austerity, structural reform and deleveraging by banks. Given enough time, these measures might restore the zone to health. But they might first push some countries off the ledge.

This three-medicine formula, detailed by The Economist as a remedy offering a glimpse of light at the end of a long and twisting tunnel, is a sophisticated financial prescription adopted by European leaders, especially the technocrats in their ranks. It remains to be seen whether the tightened political constraints (often decried as an end-run around the principle of democracy) can be sustained by EU leaders and their voters – as they have been without fail until now. In the Greek bailout’s aftermath, the eurozone countries will need all these tactics to resume moving ahead. But, with sustained determination and the always-necessary degree of luck, the eurozone as a whole – both the walking wounded in the south and their still sturdy bedfellows in the core eurozone – may succeed in their commitment, renewed in the Greek bail-out, to make the euro work.

European Affairs


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