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More time, more money, and the euro dream lives on

Once more out of the breach. The Greek financial hole will be patched up yet again, according to a German press report and a statement on Wednesday by the Greek Finance Minister. Although the German Finance Minister refused to confirm the agreement, it is all but certain that some time in the next few weeks lenders will give Athens €31-billion ($40-billion), and the government there will get a two-year extension, to 2016, to bring the fiscal deficit down to 3 per cent of GDP.

The latest delay is expected to cost lenders around €15-billion. It will be more if the long decline of the Greek economy – GDP has fallen 20 per cent from the 2007 peak – accelerates. What do the lenders, mostly fellow euro zone members, get in return?

Many bitter Greeks think the payment comes in the form of additional national humiliation and continued misery. The official announcement will provide a more positive spin, something about laying the foundations for sustainable growth and a fiscally sound government. From the perspective of Germany and the thought leaders of European unity, however, a mere 0.1 per cent of euro zone GDP per year offers a significant return: the euro-dream comes closer to reality.

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German politicians are still dedicated to this dream. The Social Democratic opposition recently criticized Chancellor Angela Merkel for not doing enough to support the troubled periphery. But Ms. Merkel wants to be sure the Greek government is committed to reform. Her October visit to Athens was a testimonial to her belief that the current Greek coalition, for all its posturing and internal tension, is on the right path.

The survival of the euro, like its creation, has always had more to do with political will than any economic calculations. As the crisis rolls on, the collective will to defend the currency has strengthened. It is now almost strong enough to make euro zone banks more regional than national institutions. It has propelled the Greek government to make changes which were politically inconceivable a few years ago. And it makes lenders willing to keep on giving Greece a little more time and money.

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