In Summary

Klaus Neumann, Swinburne University of Technology

This article originally appeared in The Age. Read the original article.

When the Greek parliament voted overwhelmingly in favour of legislation demanded this week by its European creditors, the spectre of a Grexit – a Greek exit from the Eurozone – seemed to be averted, at least for the time being. But this is no cause for celebration. The provisional agreement between Greece and the other Eurozone members, and the means by which it came about, is appallingly bad for Greece, for Europe and, not least, for Germany.

The Tsipras government was given two days to draft a host of laws and have them debated and passed. It was just one of the conditions imposed on a government that had been bullied and blackmailed into submission. 

Finance minister Wolfgang Schauble ... has revived the image of the ugly German.

For Greece, the agreement is unlikely to significantly improve the lives of ordinary citizens in the short to medium term. With the government continuing to devote a large proportion of its resources to servicing and repaying its debts, economic recovery is likely to be slow and incremental at best. Unemployment will remain high.

For Europe, the agreement privileges an economic over a political solution, and conveys the message that the selfish interests of individual Eurozone members trump the common good. The political project of a united Europe, built on solidarity rather than the presumed interests of individual countries (and of banks and other corporations based there), may not survive this blow.

The humiliation of Greece is also a terrible result for Germany. Finance minister Wolfgang Schauble, with the tacit support of Angela Merkel, has wrecked Germany's reputation (not entirely undeserved) as generous, environmentally progressive, socially innovative and largely benevolent. He has revived the image of the ugly German. Rather than collaborating with their French counterparts to lead Europe out of the current crisis, German government ministers joined the nay-sayers led by the Netherlands and the Baltic states, and thereby turned their back on the idea of a Europe that transcends nationalistic interests.

How did it come to this?

After the global financial crisis hit and Greek insolvency was looming, the institutions and governments responsible for the bailout packages in 2010 and 2012 shielded irresponsible lenders (namely, European banks) from the fallout. Rather than recognise that most of Greece's debts had to be written off, they prescribed an austerity regime that all but crippled the Greek economy.

When the first two bailout packages proved insufficient, new negotiations became necessary – this time with the leftist Tsipras government. This time, the negotiators representing the two key players, Greece and Germany, were preoccupied with domestic agendas. Alexis Tsipras was concerned to keep his own MPs and party members on side, and announced a snap referendum at a point when a compromise solution seemed to be imminent. The delay cost Greece billions of euros of extra funds that are now required to recapitalise its banks. After the referendum, to placate those in her own party who were reluctant to support another bailout, Merkel insisted on measures that were far harsher.

Both Tsipras and Merkel seemed to be oblivious to the fact that the other was performing for a domestic audience. Tsipras failed to acknowledge that Merkel felt she could not publicly support debt relief without losing support at home, and Merkel seemed personally affronted when Tsipras called the referendum and campaigned for a "no" vote.

Where to now? 

Significant debt relief is vital. While the Eurozone leaders (with the exception of France's Francois Hollande, Italy's Matteo Renzi, and Nicos Anastasiades of Cyprus) have ruled out this option, the International Monetary Fund has already said that a solution without a significant "haircut" for Greece's creditors is unrealistic.

History is full of examples of countries defaulting on their loans, receiving debt relief, and then returning to prosperity – and the best example of all is provided by postwar West Germany. In 1953, the Adenauer government negotiated a deal with its Western creditors, including Greece, which resulted in a very significant reduction of German debts, and in an extension of the grace period allowed to Germany for their eventual repayment. As early as three years ago, Tsipras told members of the European parliament that the 1953 deal should be the blueprint for a similar arrangement with Greece. He invoked it again in his speech in the Greek parliament on Thursday morning, prompting applause not just from members of his own party.

Germany, more so than any other European country, must come to Greece's rescue, possibly through bilateral assistance. This might seem unrealistic in light of Schauble's and Merkel's pettiness and lack of leadership over the past week. But it is not out of the question, particularly given the developments of the past week and their toxic fallout for Germany.

The vast majority of Germans still support the political project of a united Europe. And, according to recent polls, most Germans empathise with the Greeks and want them to remain in the Eurozone. Although Germany's largest tabloid, Bild, has advocated a Grexit, the majority of published opinion has been critical, if not scathing, of the hard line taken by the German government, particularly in the last few days.

For Germany's leaders to undo the damage done by Merkel and, in particular, Schauble, they could enter into negotiations with Greece about repaying the money owed to Greece as a result of financial transfers during the occupation of Greece. These would be loan repayments rather than reparations, but reparations for the suffering Greece endured at the hands of Nazi Germany could also come into the picture.

Again, this might seem far-fetched. Aren't the events of  World War II now too far removed in time to warrant reparation payments? Yet it was only last week that Germany officially recognised for the first time that the murder of thousands of Herero and Nama people of south-west Africa between 1904 and 1908 amounted to genocide. Reparations to Namibia, which seemed out of the question only months ago, now seem a distinct possibility.

And whereas Germany may not want to call bilateral assistance to Greece "reparations" because it would then invite other countries that were occupied by Nazi Germany to lodge claims, such a decision could recognise the special relationship between Germany and Greece. Many Germans have little difficulty acknowledging this relationship, and may appreciate it if Merkel at last extends a helping hand to a government that can't be held responsible for Greece's current predicament.

The damage is done – to Greece, to the idea of a solidary Europe, and to the reputation of Germany. The next weeks and months will show whether some of it can be undone. The ball is in Angela Merkel's court. 

Klaus Neumann is a professor of history at the Swinburne Institute for Social Research. A longer version of this article appears on Inside Story.