June 16, 2012
The next few weeks promise to be the most fateful in Europe since the fall of the Berlin Wall. The result of a general election in one small country has the potential to unleash a cascade of economic events that could set back 50 years of European integration and plunge the continent into a prolonged banking crisis and associated economic depression. Or alternatively Europe's leaders, and Germany in particular, could find the resources and imagination to reform the eurozone and not merely hold the line but advance the European cause.
Sunday's poll, the second Greek election this year, is a trigger event. Whoever is elected – a pro-European bailout coalition led by New Democracy or an anti-bailout government led by the leftwing party Syriza – will need a new deal from the EU and IMF if they are to avoid Greece defaulting on its international debts and even leaving the euro. The pro-bailout parties will need a renegotiated agreement on the terms of the bailout agreed with the international community to guard their political flank against Syriza. Syriza, if it forms a government, will need a deal because it campaigned for one and otherwise will threaten to lead Greece out of the euro. The political dynamic is brutal, but until now Germany and the EU have refused to blink. Whoever is elected, they say, must stand by the terms of the crucifying bailout already agreed with a previous Greek administration.
The risks that are driving Brussels and Berlin to take such a ruthless approach are clear. The parallel with the collapse of Lehman Brothers in 2008 is on everyone's mind, as the outgoing World Bank chief, Robert Zoellick, tells the Observer. The US government thought then that it could contain the fall-out from the collapse of one investment bank and that to throw good money after bad in order to bail out one badly run and overstretched investment bank was bad economically, morally and financially. It was disabused, triggering the greatest financial crisis for 80 years.