How the Greek Deal Could Destroy the Euro

27-Jul (New York Times) — The July 13 deal offering more financing for Greece has been billed as a last-minute step back from the brink, but the threat of a “temporary exit” from the euro proposed by a German coalition government has shaken the foundation of the euro in a far more fundamental way than meets the eye.

It has undermined what little Franco-German cooperation was left in economic affairs; it has made the single currency as it stands politically indefensible in France; and it has substantially increased the risk of euro exit across the monetary union. In short, the prospect of Grexit today has made a French, or even German, exit tomorrow far more likely.

These tensions are not new. Germany always thought of the euro as an improved exchange-rate mechanism built around the Deutsche mark, and France had bold but vague ambitions of a real international currency that would enhance the effectiveness of Keynesian economic policy. These fundamental differences were papered over at the launch of the euro because both François Mitterrand and Helmut Kohl agreed that the single currency should first and foremost serve as a means toward the greater aim of European political integration.

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