Rescuing the euro project

In a first since Greece was hit by the debt crisis, eurozone governments last week went further than providing a band-aid remedy for the country?s deficit.

Following a long period marked by internal division and foot-dragging, and under pressure from the mounting threat of contagion to other states of the 17-member eurozone, the European Council on Thursday hammered out a package of measures aimed at containing the crisis.

The coming weeks will show whether the agreed package will render Greece?s debt sustainable — though it will most likely prove to be inadequate. That said, the measures give Greece some room for maneuver and lightening its debt load. At the same time, they help safeguard the common currency zone against a crisis that threatened not only the weakest of its members — Greece, Ireland and Portugal — but also big economies such as Spain and Italy.

Regardless of the effectiveness of the package outlined at the summit, it is very important on a political level that the European Union finally made a move in the right direction. After all, the crisis is not limited to Greece. Sure, there are characteristics which are exclusive to this country, but much of it is in fact a manifestation of the euro?s systemic flaws. This means that European leaders have thrown their weight behind Greece also due to their own national interests and not just in a show of solidarity.

The markets welcomed the news, but there are signs that the pressure on the eurozone will remain. The Council?s decision is a good start, but to avoid further attacks by speculators, the decision must come with bold steps in the direction of greater fiscal and political unification, as well as economic convergence.

The EU must address the fundamental weak spot of the single currency, or the crisis will recur.

The governments of the euro area must move fast and make sure they stay ahead of developments. Sure, none of the euro nations wants to scrap the common currency; but this is not enough to save the euro project. The global economic crisis highlighted its contradictions and shortcomings.

The project of European integration is in a transitional phase which makes it vulnerable. In light of recent developments, Europe will either move forward or it will fall apart. Slow reflexes are enough to bring it to disaster.

Meanwhile, last week?s decision also created a more positive mood in Greece. That does not mean that the economic problems will go away. But there is the impression that, finally, there are the conditions for containing the free fall and providing hope for growth.

The relative euphoria should take some pressure off the Socialist government, but it is not enough to change the dynamics recorded in opinion polls. New Democracy officials? opportunistic posturing has tainted the credibility of the conservative opposition party and while it maintains its lead in the polls, this is mainly a result of PASOK?s declining political and electoral power. Like the recent cabinet reshuffle, the Council decision can?t curb the trend.

George Papandreou?s administration has lost its legitimacy — and this is very hard to remedy. His ministers and deputies are habitually harassed by individuals and groups of people. This is not part of some SYRIZA scheme, as PASOK spin doctors would have it, but a result of the fact that most people actively object to the government?s policy.

Papandreou will find it more and more difficult to govern. It is not just the reaction from professional groups — such as striking taxi drivers — that have been hit by the recent measures. It is also the people who will return from the August break only to find their real incomes slashed by the measures sanctioned by the memorandum.

The political conditions made a long Socialist spell impossible. The Brussels deal has not changed this fact. There can be no safe prediction for the shape and timing of political developments. The existing balance is evidently less stable. Talk of a general election will, sooner or later, feature high on the agenda.

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