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 The most worrying sign for European leaders is that public opinion
and domestic politics are pulling them increasingly in opposing
directions - not just between Greece and Germany, the biggest debtor
and the biggest creditor, but almost everywhere.
Germans, Finns, Dutch, Balts and Slovaks no longer want taxpayers'
money to go to bail out Greeks, while the French, Italians and
Greeks feel the euro zone is all about austerity and punishment and
lacks solidarity and economic stimulus.
With central and east European states growing more assertive and the
Dutch and Finns facing mounting domestic constraints, a compromise
between euro zone leaders Germany and France, increasingly hard to
find over Greece, is no longer sufficient to settle the problems.
There are so many stakeholders with divergent views that crisis
management is becoming ever more difficult. A far-reaching reform of
the 19-nation currency area's flawed structure seems a remote
prospect.
After weeks of late-night emergency meetings of leaders and finance
ministers, culminating in a tense all-night summit, the euro zone
produced a fragile deal to keep Greece afloat by making it a virtual
protectorate under intrusive supervision.
Few, if any, of the main protagonists think it will work.
Greek Prime Minister Alexis Tsipras said it was a bad deal that
would make life worse for Greece but he had swallowed it because the
alternative was worse. German Finance Minister Wolfgang Schaeuble
said Athens would have done better to leave the euro zone -
"temporarily" - to get a debt write-off.
Chancellor Angela Merkel, Europe's dominant leader, made clear the
main virtue of the deal was to avoid something worse.
"The alternative to this agreement would not be a 'time-out' from
the euro ... but rather predictable chaos," she said.
A senior EU official involved in brokering the compromise, who spoke
on condition of anonymity, said there was now a "20, maybe 30
percent chance of success".
"When I look at the next two to three years, the next three months,
I see only black clouds," the official said. "All we succeeded in
doing was to avoid a chaotic Grexit."
Problems are likely to resurface in late August or September when it
comes to concluding the detailed negotiations on a three-year
bailout program. By then Greece's economy may have gone further off
the rails and Greeks may be heading for early elections.
The International Monetary Fund is due to make another analysis of
Greek debt before a deal is concluded which may well show that only
a "haircut", or outright write-down of loans, can make it
sustainable.
Schaeuble, who says a "haircut" is illegal in the euro zone, will be
waiting with his Plan B for debt relief with Greece outside the
currency area.
Even if the third Greek bailout in five years does not trip up at
that stage, the chances of it being fully implemented and delivering
an economic recovery look slim.
The Greek crisis has also widened divisions between euro and
non-euro members, with Britain and the Czech Republic insisting on
guarantees for their taxpayers' money in exchange for using an EU-wide
bailout fund for bridge finance.
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If the Greek crisis were the euro zone's only worry, it might be
easier to isolate and resolve it, since financial markets have shown
little sign of the contagion to other weak sovereigns' bonds that
threatened to tear it apart in 2012.
Greece has been such a distraction that leaders barely noted an
important report authored by European Commission President
Jean-Claude Juncker with the heads of four other EU institutions on
how to make the monetary union work better.
That is arguably the biggest challenge facing the EU, yet there is
little sign of willingness to contemplate pooling more fiscal
sovereignty or sharing more common liabilities as the authors say is
required.
The debt crisis that began in 2010 led to the creation of some new
institutions to strengthen the currency area - a permanent bailout
fund, stricter enforcement of fiscal rules, a single banking
supervisor and a joint mechanism for winding down failed banks.
But German-led opposition to mutualizing debt, French-led resistance
to yielding more control over national budgets and the electoral
rise of Eurosceptic populist parties prevented the euro area going
further.
In Brussels, there is much talk of how the latest Greek crisis
should prompt a leap forward in integration to strengthen the euro
zone, but it's not clear what progress is possible.
Among the quick wins suggested by the "five presidents' report" is a
common deposit insurance scheme for euro zone banks that are under
ECB supervision and a fiscal backstop for a bank resolution fund
being raised from the finance sector.
Whether such ideas will fly in Berlin remains to be seen. In the
longer term, after 2017, the report envisages setting up a euro area
treasury accountable at the European level.
French President Francois Hollande suggested this month creating a
parliament for the euro zone to give decisions greater democratic
legitimacy.
Such ambitious visions stand at odds with frantic nocturnal crisis
management and the increasingly divisive nationalist tone of much of
the debate in the euro area.
(Writing by Paul Taylor, editing by Richard Mably)
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