The last attempt to cut another Greek rescue deal falls short on two counts. One, while it proposes a schedule of payments tied to performance benchmarks on deficit reduction and public sector restructuring, there is no way to properly audit the measures taken. The speed at which new funds will be injected into the Greek public sector will forestall any attempt to properly develop governance mechanisms as these take time. Second, the payments are front loaded, which reduces the pressure to implement the reforms as time progresses.
More fundamentally, this rescue attempt, as have others in the past, ignores a fundamental problem. That natural endowments, institutions, traditional sources of wealth creation, and standards of living vary greatly across the Continent. There is no natural geographic or cultural entity called Europe. Therefore, the rate at which economic development can expect to progress will greatly vary across the region. For example, Greece is predominantly an agricultural economy. Joining the EU shifted its trajectory of capital accumulation toward non-agricultural assets.
The rationale for the EU is that integration will improve trade and lift the standards of living for everyone. But the initial public relations to get buy-in set up the expectations that this will happen quickly. If the heady post-Berlin Wall period of East/West German integration was any indication, such expectations are wildly optimistic. This was not helped by the initial integration funding provided to help the less developed members 'catch up' to their richer neighbors. Rather than investments in enhancing the sources of wealth creation and fostering entreprenuership to exploit these assets, the sudden injections of cash merely fueled private spending to unsustainable levels.
The EU also made it possible for the flow of unrestricted speculative capital to those countries without the capacity to properly absorb it productively. Recall the real estate bubble that led to the current recession in the U.S. Imagine similar dynamics occuring in less financially sophisticated and accountable economies. Capital ended up in real estate and large government projects that trickled down into unrestrained private and public consumption.
This is the new normal. Until such countries as Greece decouple from the union, the haves will subsidize the havenots for the foreseeable future, and the havenots, feeding on the largess of their richer neighbors, will have little incentive for fundamental change. The haves might feel self-righteous about all this but the havenots are the ones that really suffer because their trajectory toward economic wellbeing has been hijacked by well meaning 'do-gooders'. It's a turbocharged version of European socialism, but across countries...