For its rigid stance in negotiations with Greece, Germany has become the target of opprobrium. Writing in the New York Times over the weekend, Paul Krugman ponders whether Germany's good intentions will ever be trusted again; whether it will attempt to hinder Greece's recovery, instead preferring to humiliate the Greek people; and whether the “European Project” will now meet its doom. Brown political economy professor Mark Blyth makes the case in Foreign Affairs that culpability for its predicament does not reside with Greece at all; rather, the entire episode has been “a continuation of a series of bailouts for the financial sector that started in 2008 and that rumbles on today.”
By any measure, Greece has descended further into crisis over the last several weeks. Marathon negotiations in Brussels carried into Sunday night in an effort to avert a collapse of the Greek banks and the country's exit from the Eurozone. From the outside looking in, commentary has been increasingly focused on creditors' mixed motives and flaws in the austerity model. For Germany's part, inflexibilty is desgined to be precedent-setting. In the end, Greek Prime Minister Tsipras effectively ceded to terms his citizens gave him a mandate to reject just one week ago. Reading into the European troika's and Germany's motivations may offer good sport, but it will not restore Greece to the good graces of the lenders that forced his hand.
The matter is not settled, since Mr. Tsipras will now have to contend with his party, a parliamentary vote, and the Greek public. Even if the agreement announced Monday morning succeeds in keeping Greece within Europe's fold, serious long-term damage to its economy has already been done. Setting aside the question of German motives, Greece's credibility as a political and financial counterparty has been wholly undermined by its government's unpredictability and often amateurish handling of negotiations. Euro or drachma, the heightened risk perception associated with Greek investment will constrain its capacity to borrow, severely hinder foreign direct investment, and foment a further crippling brain-drain of its most capable and mobile young professionals. Greece's best option in the aftermath of crisis will be to signal clearly to its economic partners that it is open and once again ready for business.
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