A giant leap for the eurozone – a small step for Greece…

The agreement reached in the 21/7 Eurogroup Summit is beyond doubt historic. For a first time the eurozone leaders moved towards a comprehensive response to the crisis, which addresses it not as a country-specific liquidity problem, or a problem of public finance management, but rather as a much wider solvency problem affecting fiscal stability in the Eurozone at large. The agreement is moreover historic because it provides an example (and a template?) for how institutional constraints, like those on national bailouts and central bank independence set by the Maastricht Treaty, can be overcome if enough political resolve and ingenuity is on the table. It creates essentially a permanent bailout mechanism which can operate, in political terms, independently of the ECB. What this means about the so-called primacy of monetary policy and for price stability in the eurozone remains to be seen. But the historic moment of the agreement is that it reflects an “it is politics, stupid” attitude: it is the moment when Europe becomes again the field where economic problems are offered political solutions – and not a technocratic arena where markets dictate politics.