With the Second Greek Bailout, Will Greece Become Germany or Germany Become Greece?

The second Euro zone bailout for Greece confirms what was pretty clear from the tea leaves: the political leadership of the EU intends to stand behind all the public debt and all of the banks of all its members. This bailout gives the can another kick down the road, pushing back debt maturities but still leaving Greece facing an unsustainable debt load. While there is a provision for an exchange of bonds by private holders that would involve a 20% loss for them, that's a pretty generous deal considering that these bonds traded at a 50% discount in the open market. You can call it bailout light. The bond exchanges won't do much to reduce Greece's total debt load. More bailouts loom.

The Greek Bailout, Part Deux, necessitates more austerity. A nation where the public sector is 40% of GDP, Greece is looking at years of constraint in government spending. Politically, that will be a challenge. But the alternative--departure from the Euro zone to pursue other interests--would be worse. So Greece will have to man up and tighten its belt. Right?

Well, not so fast. The second bailout requires closer political supervision of Athens by Brussels than ever before. The same will be true for Ireland, Portugal and other nations, if they tap into the brave new bailout facility. The Euro zone is cruising toward political union. For a while, no high ranking European officials will say so. But political union is essential to prevent the bailout process from fostering an ever bigger sovereign debt bubble. Otherwise, the bailees could allow their public debt to keep growing, and stick the costs on their wealthy northern European benefactors. Greece, therefore, must become Germany.

But will it? There are obvious cultural, historical and linguistic differences between the two nations, differences that have existed for thousands of years. There are also lingering memories of World War II, in which Greece suffered under harsh German occupation. Greece won't transform itself over the next five years into the new Pomerania.

The very concept of political union implies a melding of traditions and cultures. All member nations of the EU will have a political voice, and they will have to listen to each other. All will influence the others. Such is the case with political amalgamation. The Roman Empire, at its indolent, libertine, epicurean peak, was a far cry from the relatively simple, disciplined world of Cincinnatus. America, the world's melting pot, has grown far from the spare, repressed, colorless culture of the Puritans, absorbing words, foods and values from wave after wave of immigrants. As the EU becomes the United States of Europe, Germany will absorb ideas and values from other members, including Greece. Southern Europe will also change to more closely resemble its northern neighbors. But the final outcome is unpredictable. Consider Daimler-Benz's acquisition of Chrysler Corporation.

Daimler-Benz merged with Chrysler in 1998. The idea was to give Daimler-Benz a bigger presence in North America, while joining Chrysler with a company that had much higher product quality standards. The Mercedes vehicles of the 1980s and early 1990s generally had excellent reviews for quality, reliability and safety. Chrysler, it was hoped, would become Mercedes.

That didn't happened. During the decade that Daimler-Benz was affiliated with Chrysler, Mercedes' products frequently got mediocre reviews for quality and reliability and Chrysler's products remained as crummy as ever. (See Consumer Reports.) In other words, Mercedes became Chrysler. Things got so bad the two companies went their separate ways.

Maybe Germany will become Greece. With a raucous, unruly union on its hands, Germany may find it easier to defer problems than face the pain of resolving them. The second Greek bailout's tack of pushing debt maturities back--another kick down the road for the can--doesn't portend well for a Germanic EU. Actual reduction of Greek and other sovereign debt loads is the litmus test for the EU's viability, and that fat lady ain't singing yet.

It will be up to the legislatures of individual Euro bloc nations to approve the second Greek bailout. Chances are they will, maybe with a teaspoon or two of rancor. The chances of a major financial crisis from the EU's sovereign debt problems have diminished for a couple of months, perhaps. But don't let your guard down. The American debt ceiling squabble is accelerating rapidly from 60 to 120. Ireland and Portugal may take their hats into their hands, and line for their second turns at the bailout trough. Ours is a world living on borrowed money, and consequently, we're never truly in control of our lives.