A lack of nerve, not Greece, may lead to fall of euro

The pilgrimage of Greek premier Alexis Tsipras to Moscow told a tale of two tragedies. One, perilously close to the denouement, is about Greece's uncertain place in the family of European nations; the other, still unfolding but with a storyline that foretells a calamitous final act, is about the future not just of the euro but of European integration.

Predictably enough, the Greek prime minister was feted by Vladimir Putin. The Russian president's revanchist aggression in Ukraine has left his regime more vulnerable than anyone in the Kremlin would dare admit. Putin badly needs to weaken the EU sanctions regime. Shared Orthodox Christianity, an air of leftist nostalgia in Athens and Greece's desperate isolation make it an ideal target for Moscow's strategy of divide and rule.

It is harder to see what Tsipras gains beyond warm words to cheer his supporters at home. The promise of a gas pipeline years hence? Any aid from Moscow would be minuscule relative to funds from the EU and IMF. Putin could do nothing to make leaving the euro any less painful.

The other day Yanis Varoufakis explained how Greece had ended up here. The finance minister's is a story fluently told – of US backing for the colonels, of the havoc wreaked on industry by the EU's free-trade rules, of the Brussels funding that bankrolled clientelist politics in Athens, of cheap euros creating a ruinous bubble.

Varoufakis is right when he says the present debt burden is unsustainable. Missing from the narrative, though, is any sense that Greece must make its own choices. That, whatever the sins of others, only Athens can decide whether Greece prospers as a modern democracy or slips back into the shadows of the Balkans.

The omission is at the heart of what so frustrates Athens’s partners. This is not just about the Germans. Tsipras is isolated among fellow debtors as much as creditors. What unites them is a demand that Athens produce a plausible plan reform plan – to modernise its administration and politics as well as its economy. Such a plan would transform the mood of negotiations.

Russia’s trademarks

Putin’s preference is otherwise. A collapse in Greek living standards would leave it ripe for the coercion and subversion that are Russia’s trademarks in an effort to expand its influence and control in southeastern

Europe

. Putin already has Hungary’s prime minister

Viktor Orban

in his breast pocket. His agents are working to promote instability across the Balkans.

Yet talk to finance ministers and central bankers across the rest of Europe and the mood is one of fatalism. They will tell you the euro zone would withstand Greece’s departure. This is not 2008, or even 2012, they say. Governments have put in place the mechanisms to deal with crises. Some sound as if they believe the euro would be stronger in the long run.

In a narrow sense they may be right. But Greece is a distorting prism. Its sequential crises have bred complacency by distracting from the structural flaws and political challenges that still imperil the euro. Making monetary union work demands more than proficient crisis management.

Spring has seen a burst of sunshine in the European economy. Quantitative easing is having an effect. Growth has picked up a little. Yet it is a delusion to think the euro is in safe harbour. Fiscal and financial union are at best half-completed, and the political threat to the euro continues to grow.

National politicians refuse to admit the supranational imperatives of the project they are pledged to safeguard. And a return to growth rates of 1 or even 2 per cent will not be enough to restore the euro’s legitimacy among angry voters.

In 2012, European leaders defied the markets by summoning up the political resolve needed to save the single currency. They have since lost the will to sustain it. Greece may not bring down the euro; the existential threat lies in the more generalised failure of nerve and leadership.

So it is, too, in the relationship with Moscow. The biggest danger to Europe comes not from Putin’s rusting aircraft carrier, his cold-war nuclear bombers or Soviet-style subversion. No, the real weakness lies in a European mindset that prefers to temporise and equivocate than to confront Putin head on. Tsipras’s visit may have held up a mirror to Greece’s troubles. But it also offered a reflection of diffidence and division across Europe. If Greece falls out of the euro it will also fall out of Europe. And the failure of the euro would mark the failure of Europe. What unites these twin tragedies is the stubborn reluctance of the authors to rewrite the endings. © Financial Times Ltd 2015