GREECE says it doesn’t have any more money to give its creditors. Its economy has contracted by 25 percent in recent years. Unemployment’s through the roof. Public pensions have been slashed. Homelessness grows. The country is debt-drenched and needs more emergency loans, but—in the minds of Greek officials—not if that means accepting more punishing terms offered by European leaders. Greece needs room to breathe.
Europe says it wants to help. But Greece can’t be allowed to wriggle out of commitments it made when it borrowed money that other countries’ governments had collected from their taxpayers. If the Greeks want more bailout money, they must play by Europe’s rules and accept more belt-tightening. Otherwise, another country may try the same tactic and the whole idea of a unified Europe unravels. Greece needs to be responsible with other nations’ money.
And there you have the two sides of a tense diplomatic negotiation, the kind that often goes down to the wire before a compromise. Except this crisis slipped past the grandstanding stage and entered the realm of real life: Greece missed a debt payment to the International Monetary Fund (IMF). If the Greek government and European finance officials don’t resolve this fiasco in a hurry, the global economy will get an unwelcome shock. Greece will drop out of the euro, Europe’s single currency, becoming a wounded free agent on the continent’s periphery.
How did Greece join a list of deadbeat nations that includes Sudan and Somalia? You could start by questioning how tiny, slow-moving Greece was ever a good fit for the same currency as powerhouse Germany. It wasn’t, but the allure of a single, tightknit European continent able to outduel the US and China in the global marketplace was too strong.
Greece and other weaker players joined up, never fully fit in with their richer partners but took their bank loans and then tumbled during the financial crisis of 2008. To stay solvent, Greece has been living off billions in bailout funds from Europe—money that came with taut strings attached. In all, Greece owes $270 billion to the IMF and European creditors. That lending agreement expired on Tuesday, the same day a payment was due.
Facing a deadline to keep the spigot going, leaders on both sides seemed ready to follow diplomatic convention: Negotiate until dramatically snatching victory from the jaws of defeat. Then came a surprise change in the script. Greece Prime Minister Alexis Tsipras stunned his European negotiating partners days ago by disrupting the talks. He announced he would put the question of a new loan agreement to a national referendum. And, Tsipras said, he intended to campaign for the “no” side. The Europeans flipped out. Jean-Claude Juncker, the European Commission president, said he felt “betrayed.” German Chancellor Angela Merkel held firm to Europe’s negotiating position but sounded worried. “If the euro fails, Europe will fail,” she said. “That’s why we have to fight for these principles.”
Judged by words alone, Greece’s showdown with Europe’s leaders is still in the brinkmanship stage. The two sides were set to talk more. Nobody is writing up an eviction notice—yet.
But the unraveling, still stoppable, has begun. Europeans cut off emergency credit to Greek banks, which have shut down until after the referendum. Go to a Greek ATM and the maximum you can withdraw a day is about $66. World markets are on edge because a scary word from the last decade’s global economic crisis—contagion—is being used again.
There’s not much agreement on the fallout if Greece walks away from its debt. It seems certain that Greece would leave the euro, reinstate the drachma and try to manage its own economic affairs without help from Europe.
In this weakened state, Greece probably suffers through years of deprivation, still in the European Union but on the outs. Best-case scenario: Greece keeps its commitments as a Nato member and eventually reestablishes itself as a bargain corner of Europe, a good place for light industry and a vacation. Worst-case scenario: How about Greece as Putin’s new plaything? Unlikely, but Greece’s exit from the euro raises the risk of geopolitical instability. It’s not inconceivable that this Greek drama will cost the US a longtime ally.
As for Europe, the continent recovered from the global economic crisis and seems able to cope with “grexit.” But there will be a cost of unknown size because in a globally integrated economy, not every connecting point is obvious. Who knows where the next crisis pops? The other big risk for Europe is political, because the continent’s postwar identity is wrapped up in the concept of integration.
If Greek voters do vote no in the referendum and walk away from the euro, the country will deliver two seismic blows: one to its own place in the global economy, and another to Europe’s long-held belief in unity. The best outcome is for the two sides to compromise. Fast.
TNS editorial
Image credits: Jimbo Albano