This article is from the source 'guardian' and was first published or seen
on .
It last changed over 40 days ago and won't be checked again for changes.
Greece bailout talks: an intractable crisis with three possible outcomes
Greece bailout talks: an intractable crisis with three possible outcomes
(about 7 hours later)
Late-night mini summits in Berlin. A no-surrender stance in Athens. A deadline to meet in Washington DC by the end of the week. The Greek crisis is coming nicely to the boil, with three possible outcomes.
The threat of Greece welching on its debts by the end of the week is concentrating minds. After a mini summit in Berlin attended by the heads of the European Commission, the European Central Bank and the International Monetary Fund, the so-called troika is preparing a fresh bail out offer.
Option one is that Greece leaves the euro, either by accident or design. Despite the often spiky negotiations, the assumption has been that a deal will be done between Greece and its creditors to keep the single currency intact. That assumption could prove to be as erroneous as the assumption that a buyer would be found for the ailing US investment bank, Lehman Brothers, in September 2008. Greece could decide that the terms being demanded by the European commission, the European Central Bank and the International Monetary Fund are too harsh. The so-called troika could lose patience and throw Greece out.
Alexis Tsipras’s government was denying all knowledge of a new plan to break the deadlock, but one thing is certain: this Greek drama can end in only one of three ways.
Option one is that Greece leaves the euro, by accident or design. Greece could decide that the troika’s terms are too harsh. The troika could lose patience and throw Greece out.
Related: Greece vows not to be blackmailed by creditors after emergency summit - live updates
Related: Greece vows not to be blackmailed by creditors after emergency summit - live updates
Euro exit could prove the least bad economic choice for Greece, which would then devalue and write off a large chunk of its unpayable debt. Life would still be tough, but life will be tough anyway if Greece – after a recession that has already led to the economy shrinking by a quarter – agrees to more austerity.
Euro exit could prove the least bad economic choice for Greece, which would devalue and write off a large chunk of its debt. Life would be tough, but the pain might be less prolonged than under seemingly endless externally-imposed austerity.
A Grexit now would probably cause fewer economic shockwaves than it would have done two or three years ago, but there would still be knock-on effects on Europe and the wider global community. The political ramifications would be more serious. Greek departure would embolden anti-austerity parties across Europe, most notably Podemos in Spain. It would be the first setback to ever-closer European integration over six decades and would cast a shadow over David Cameron’s renegotiation of Britain’s EU membership ahead of a referendum.
A Grexit now would probably cause fewer economic shockwaves than it would have done two or three years ago, but there would still be knock-on effects on Europe and the wider global community. The political ramifications would be more serious. Greek departure would embolden anti-austerity parties across Europe, most notably Podemos in Spain. It would be the first setback to ever-closer European integration over six decades and would cast a shadow over David Cameron’s renegotiation of Britain’s EU membership .
Option two is that the Greeks cave in. Alexis Tsipras has been gamely trying to ride two horses at once since he became prime minister in January: the desire of Greek voters to both end austerity and stay in the euro. The moment is rapidly arriving when Tsipras has to decide which of the two policy goals is the more important, because it looks as if he can’t achieve both. Far from being the prelude to exit, the ratcheting up of the rhetoric in recent days might be the government’s attempt to show the Greek people that it has gone as far as it can to resist the demands of the troika for further wage and pension cuts but continued euro membership means there is now no choice but to surrender on the best possible terms available. This would involve slightly easier debt repayment terms and less onerous budget targets to meet. But if Tsipras is going to capitulate, he is showing little sign of it. The late-night meeting in Berlin, attended by Christine Lagarde, the managing director of the IMF and the president of the ECB, Mario Draghi, suggests the troika is worried. Angela Merkel hosts a meeting of the G7 in Bavaria this weekend and does not want it to be overshadowed by Greece.
Option two is a Greek cave in. Tsipras has been trying to ride two horses at once : the desire of Greek voters to both end austerity and stay in the euro. The moment is rapidly arriving when Tsipras has to decide which of the two goals is the more important, because it looks as if he can’t achieve both. But if Tsipras is going to capitulate, he is showing little sign of it. The late-night meeting in Berlinsuggests the troika is worried. Angela Merkel hosts a meeting of the G7 in Bavaria this weekend and does not want it to be overshadowed by Greece.
All that points to option three, a good old-fashioned euro fudge. Greece does not want to leave the euro. Merkel does not want to be the politician held responsible for derailing the European project. So there is a temptation to do what Europe has done throughout its six-year sovereign debt crisis: play for time. This would involve Greece’s creditors providing bridging finance that would allow Tsipras to meet the series of debt repayments due this summer and for a referendum to be held on whether the Greeks believe yet more austerity is a price worth paying for staying in the euro. Athens would give a solemn commitment to step up the pace of economic reform; the troika would say that any backsliding will result in the money being cut off.
All that points to option three, a good old-fashioned euro fudge. This would involve Greece’s creditors watering down their austerity demands and providing the bridging finance that would allow Tsipras to meet the series of debt repayments due this summer. This would provide the breathing space for a referendum to be held on whether the Greeks believe yet more austerity is a price worth paying for staying in the euro, and for negotiations on the big long-term issue: the need for some of Greece’s debt to be written off. Athens would give a solemn commitment to step up the pace of economic reform; the troika would say that any backsliding will result in the money being cut off.
So which of the three options is it going to be? Kicking the can down the road looks the most likely, but the risk of something nasty and messy is rising all the time.
