Philip Stephens: Europe will pay the price for Greece

The organising fact of modern policy-making is that the urgent tends to obscure the important. The urgent in this case is the cliffhanger over whether Greece stays in the euro. The important is the uncertain future of the single currency and a threatened unravelling of the post-war project of European integration.

German chancellor Angela Merkel has been carrying Europe on her shoulders. For all his efforts to save Greece from itself, French president François Hollande has been diminished by his country's weak economy. David Cameron, planning a vote on Britain's EU membership, is not on the field.

Without a cohesive Europe, Germany is lost. Former chancellor Helmut Kohl understood this when the Berlin Wall came down. The euro was the Franco-German bargain that would make a united Germany safe for Europe. Mr Kohl, though, foresaw a European Germany, not a German Europe.

As Ms Merkel treks between Berlin and Brussels, the strain is beginning to show.

Her trick when the euro crisis broke was to persuade voters at home that it was worth paying to save the euro while cajoling weak euro zone states into austerity and reform programmes. Solidarity was traded for responsibility. Governments in Ireland, Spain and Portugal would say it has worked. With Greece, Merkel has fallen off the wire.

Whose fault? There is more than enough blame to go around. As Sigmar Gabriel, the German Social Democratic party leader has said, Greece should never have been allowed to join the euro.

With hindsight it was a mistake also to rule out in 2012 any possibility of sovereign default within the euro zone – though it is easier to make that case now than it was in the turmoil of those times. Subsequent bailouts left Greece with too much debt. Politicians in Athens made promises they never intended to keep.

Ruinous concoction

The Syriza administration of

Alexis Tsipras

has been the worst of the lot – fuelled by a ruinous concoction of Marxist ideology, an abiding narrative of victimhood and breathtaking incompetence.

There was a deal to be done with creditors. A more mature leader could have sought debt relief in return for fiscal restraint and a drive to stamp out the corruption and clientelism that disfigures Greek democracy.

Instead, a modestly improving economic outlook has been replaced by the threat of financial collapse.

The rest of Europe should take no pleasure in Tsipras’s discomfort. Righteous anger is not a substitute for intelligent policy. With Greece on the threshold of euro exit, politicians elsewhere have noted the calm in the markets. Surely this is proof positive that the euro zone’s firewalls against contagion will hold?

I would not be quite so sanguine. Shocks are often, well, shocking even when they have been widely predicted.

In any event, the big risk is of political contagion. Politics saved the euro when economists everywhere predicted its imminent demise. Such professional gloomsters underestimated the willingness of Germany to bend and, Greece aside, the brutal determination of debtor nations to stay in the euro. Now it is politics that could now bring the project crashing down.

Frustrations

The guiding emotion behind Europe’s present discontents is a pervasive sense of powerlessness. The perception that they had been robbed of all say explains the choice of Greek voters in last weekend’s referendum. Voting No collided with the wish of most Greeks to keep the euro, but, as an act of desperation and defiance, it spoke to the frustrations of citizens across the continent.

This is the mood that mainstream political leaders should fear. It has disinterred old nationalisms and served as the recruiting sergeant for the parties of the extremes now challenging Europe’s post-war centrist order.

Marine Le Pen's National Front in France, Beppe Grillo's Five Star Movement in Italy, Podemos in Spain and Pegida in Germany – all peddle a populism that feeds off the sense that ordinary citizens have become helpless bystanders in a world run for the benefit of the elites.

Europe is assailed from all sides – by the revanchism of Russian president Vladimir Putin to the east, by violent Islamist extremism in the Middle East, and by uncontrolled migration on the other side of the Mediterranean.

Stir in years of austerity and a rising mistrust of globalisation and it is not hard to explain rising nationalism. Yet the genius of the populists has been to channel anger towards Brussels and its half-finished monetary union.

Greece remains a vital piece in the geopolitical stability of the continent. And whatever central bankers and finance ministers say, a euro without Greece would be a much weakened enterprise .

Holding on to Greece would be costly. Losing it would be seriously expensive. – Copyright The Financial Times Limited 2015