AEI’s Stan Veuger diagnoses “at least two major problems” that European leaders must overcome: “distrust of Greece and its ‘leaders,’ and Greek voters’ resistance to fiscal conservatism and structural reform.” Dr. Veuger’s solution:
The central reason why it is so hard to overcome these two problems is the comprehensive, potentially world historic nature of every step of the process: the possible outcomes are constantly portrayed and perceived as in or out, bailout or World War III, austerity or prosperity. That needs to end if we want to keep Greece in the currency union without expecting a return to drachma drama a few months from now.
To do so, we need to the relationship between Greece and its partners to be more conducive to the recreation of trust and the restoration of hope. The most straightforward way to do this is by abandoning the path of now-or-never comprehensive package deals in favor of a more flexible yet more accountable point system. Greece is expected to receive €86 billion in ESM funds in exchange of meeting fiscal and reform targets in a small number of tranches: let’s instead assign 860 points to the conditions it needs to meet. Every time Greece implements a reform, for example when it broadens its definition of a bakery like German Finance Minister Schäuble so dearly wants, it is rewarded with a point (or half a point, or 10 points) and the corresponding €100 million (or €50 million, or €1 billion).
You can find my take on the situation in Greece here.