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Now Europe Must Decide Whether to Make an Example of Greece Now Europe Must Decide Whether to Make an Example of Greece
(about 14 hours later)
For years now, it has seemed to any reasonably informed outsider that something was going to have to give in Greece. You surely couldn’t have an economy in depression for five years and counting, in a democracy, without the people demanding a different approach, consequences be what they may.For years now, it has seemed to any reasonably informed outsider that something was going to have to give in Greece. You surely couldn’t have an economy in depression for five years and counting, in a democracy, without the people demanding a different approach, consequences be what they may.
Sunday, something gave.Sunday, something gave.
The Greek citizens overwhelmingly voted “No,” rejecting the nation’s creditors’ bailout deal and rejecting continued austerity. It sets up what will be a defining period for Europe, no matter what happens next.The Greek citizens overwhelmingly voted “No,” rejecting the nation’s creditors’ bailout deal and rejecting continued austerity. It sets up what will be a defining period for Europe, no matter what happens next.
During the week leading up to the referendum, the left-wing Greek government argued that a no vote would offer them a stronger negotiating position in the latest round of talks with the creditors. That much was true.During the week leading up to the referendum, the left-wing Greek government argued that a no vote would offer them a stronger negotiating position in the latest round of talks with the creditors. That much was true.
The outcome leaves Prime Minister Alexis Tsipras in charge, with a clearer mandate to continue his strategy than he had Sunday morning. His message to his key interlocutors, including Angela Merkel, the German chancellor, and Mario Draghi, the European Central Bank president, will be simple and well supported by the outcome of the referendum: The Greek people will not abide a continuation of the austerity policies of the last five years. Make us a better offer.The outcome leaves Prime Minister Alexis Tsipras in charge, with a clearer mandate to continue his strategy than he had Sunday morning. His message to his key interlocutors, including Angela Merkel, the German chancellor, and Mario Draghi, the European Central Bank president, will be simple and well supported by the outcome of the referendum: The Greek people will not abide a continuation of the austerity policies of the last five years. Make us a better offer.
Less evidently true was the contention by Mr. Tsipras that this outcome need not involve abandoning the euro. During the run-up to the vote, European leaders were shouting from the rooftops that rejecting the bailout offer would mean saying goodbye to the common currency, ushering in a volatile, dangerous era for Greece with far-reaching consequences.Less evidently true was the contention by Mr. Tsipras that this outcome need not involve abandoning the euro. During the run-up to the vote, European leaders were shouting from the rooftops that rejecting the bailout offer would mean saying goodbye to the common currency, ushering in a volatile, dangerous era for Greece with far-reaching consequences.
Now we will find out whether they were bluffing.Now we will find out whether they were bluffing.
The European creditors are exasperated by the Greek leaders, who cast aside many of the niceties of intra-European diplomacy in pursuing an aggressive negotiating style. (Hint: If you are negotiating with Germany seeking debt relief, bringing up Nazi war reparations, as Mr. Tsipras has, isn’t the most effective idea).The European creditors are exasperated by the Greek leaders, who cast aside many of the niceties of intra-European diplomacy in pursuing an aggressive negotiating style. (Hint: If you are negotiating with Germany seeking debt relief, bringing up Nazi war reparations, as Mr. Tsipras has, isn’t the most effective idea).
But the decision for European leaders isn’t whether they like or dislike Mr. Tsipras and his finance minister, Yanis Varoufakis. It is whether they believe the goals of maintaining a united Europe are worth yielding to Greece’s demands: maintaining a spigot of cash (through E.C.B. bank lending programs) and ultimately a new bailout that lets the Greeks write down meaningful debt and relax some of the cuts to pensions and government worker pay of past deals. But the decision for European leaders isn’t whether they like or dislike Mr. Tsipras. (The finance minister, Yanis Varoufakis, won’t be part of the picture, resigning Monday). It is whether they believe the goals of maintaining a united Europe are worth yielding to Greece’s demands: maintaining a spigot of cash (through E.C.B. bank lending programs) and ultimately a new bailout that lets the Greeks write down meaningful debt and relax some of the cuts to pensions and government worker pay of past deals.
German leaders genuinely believe that a new deal along those lines would be bad economic policy for Greece. Many economists at the International Monetary Fund and American officials would argue it is entirely sensible. The fact is that the time for those debates is over for now; we’re in a realm of power politics, not substantive economic policy debates.German leaders genuinely believe that a new deal along those lines would be bad economic policy for Greece. Many economists at the International Monetary Fund and American officials would argue it is entirely sensible. The fact is that the time for those debates is over for now; we’re in a realm of power politics, not substantive economic policy debates.
The choice for leaders of Germany, France and the rest of Europe will look something like this:The choice for leaders of Germany, France and the rest of Europe will look something like this:
If they tolerate the Greek government’s demands, they will be setting a bad example for every other country that might wish to challenge the strictures of the European Union, telling voters in Portugal and Spain and Italy that if they make enough fuss, and elect extremist parties, they too will get a much sweeter deal. It would send the signal that a country can borrow all it likes, walk away from those debts and make the rest of Europe pay the bill, as long as it is intransigent enough.If they tolerate the Greek government’s demands, they will be setting a bad example for every other country that might wish to challenge the strictures of the European Union, telling voters in Portugal and Spain and Italy that if they make enough fuss, and elect extremist parties, they too will get a much sweeter deal. It would send the signal that a country can borrow all it likes, walk away from those debts and make the rest of Europe pay the bill, as long as it is intransigent enough.
If they refuse the Greek government’s demands and cut off funds, the Greek banking system will collapse and the country will no longer be part of the eurozone, sending a signal that the European Union is deeply fragile. Greece would sidle closer to a hostile Russia. A modern European democracy — indeed, the original democracy — could well collapse into something chaotic and unstable. Oh, and all this may end up costing the rest of Europe more money than even the most generous of bailouts, as Greece would default on its obligations outright rather than merely restructure them.If they refuse the Greek government’s demands and cut off funds, the Greek banking system will collapse and the country will no longer be part of the eurozone, sending a signal that the European Union is deeply fragile. Greece would sidle closer to a hostile Russia. A modern European democracy — indeed, the original democracy — could well collapse into something chaotic and unstable. Oh, and all this may end up costing the rest of Europe more money than even the most generous of bailouts, as Greece would default on its obligations outright rather than merely restructure them.
Essentially, European leaders must decide if their frustration with Greece and fear of a bad precedent are strong enough that they are willing to take a giant step in the other direction, by withholding further euros from Greece.Essentially, European leaders must decide if their frustration with Greece and fear of a bad precedent are strong enough that they are willing to take a giant step in the other direction, by withholding further euros from Greece.
Sunday, Greek voters faced their crucial moment of decision, and they were clear: They are willing to risk the euro to avoid more austerity. Now it is Ms. Merkel and the other leaders of Europe who face a ticking clock and a decision that will ripple through history.Sunday, Greek voters faced their crucial moment of decision, and they were clear: They are willing to risk the euro to avoid more austerity. Now it is Ms. Merkel and the other leaders of Europe who face a ticking clock and a decision that will ripple through history.