Greek voters definitively rejected the bailout terms demanded by the “troika” — the European Commission, the International Monetary Fund and the European Central Bank — that is negotiating with the Athens government. A vote that was expected to go down to the wire instead produced a stunning majority of over 61 percent rejecting the deal.
Yet if Greek Prime Minister Alexis Tsipras had hoped that the ballot would strengthen his hand, he appears to have been mistaken. European attitudes have hardened. Officials from the troika and the governments they represent have tired of Greek prevarications and are demanding concrete details of reforms before any additional funds will be provided. Athens is supposed to pay €3.5 billion ($3.9 billion) to the ECB on July 20, but it has no money. Last week, it became the first developed nation to miss a payment to the IMF and the prospect of outright default and exit from the euro still looms, even though all parties insist they want to avoid that outcome.
Greece has debt of €317 billion, or more than 180 percent of its gross domestic product. That staggering burden — still less than Japan’s combined debt and a fraction of the value lost in Chinese stock markets over the last month — is the result of profligacy and irresponsibility on the part of successive Greek governments and accounting tricks by those same administrations, as well as a readiness on the part of lenders to keep the spigots open in the search for easy profits. Greece can be faulted for living beyond its means, but its creditors can also be blamed for enabling that behavior. There is ample blame to go around.
Unfortunately, efforts to negotiate a new settlement have been complicated by the terms of the previous agreement. Tsipras is right to argue that Greece has become “a laboratory for testing austerity over the past years” and that much of the €240 billion in loans already extended to help his country has flowed back to creditors and not the Greek people. Those creditors are also right to note that Greece was recovering until Tsipras took office and the economy has slipped back into recession. Again, there is ample blame to go around.
Nonetheless, Tsipras insists that any future agreement must include debt relief and the new finance minister, Euclid Tsakalotos — replacing Yanis Varoufakis, a fiery Marxist who had antagonized most of the country’s negotiating partners — has requested a new package of loans from Europe’s bailout fund, the European Stability Mechanism (ESM). That submission is painfully short of details, however, and European leaders— in particular German Chancellor Angela Merkel, but she is not alone — have demanded specific details on what the Athens government would do to get its economy in order. Merkel has been blunt, saying “the conditions for starting negotiations on a program in the framework of the ESM continue not to exist.”
Politicians may have time to posture, but the Greek people do not. Banks have been closed for nearly two weeks and there is a daily limit of €60 for withdrawals from ATMs. The government insists that food, fuel and medical supplies are safe and stable. Apart from long lines, life is reportedly close to normal in Greece.
This benign state of affairs cannot continue. Greece faces a July 20 deadline that must be met in one form or another: either it must agree to new terms and get a new bailout or it will default. If that occurs, then Greece and Europe are in uncharted territory. The difficulties of reaching a deal are compounded by the hardening of positions in Europe, a result of rising irritation with and distrust of Greek negotiators. European Commission President Jean-Claude Juncker made plain European frustrations when he acknowledged that Europe has plans for Greece’s exit from the eurozone, often referred to as “Grexit.” Pounding the lectern, he explained that “I’m strongly against Grexit. But I can’t prevent it if the Greek government is not doing what we expect the Greek government to do.” While he is the most visible figure to voice such sentiments, he is not alone.
There is more at stake than Greece’s fate. While economic hardship in Greece will intensify if the country has to leave the eurozone, that would be a powerful blow to the entire European project. It would expose a fundamental flaw at the heart of the integration process — that such diverse economies can be controlled by a single authority — and empower the small but increasingly powerful and vocal anti-European minority throughout the continent. At a time when Europe faces challenges from beyond its borders, in particular the muscular foreign policy and saber-rattling of Russian President Vladimir Putin, solidarity and unity is more important than ever.
It is up to Athens to put flesh on the bones of its request for additional assistance. Prime Minister Tsipras must decide whether he is prepared to leave the eurozone. His actions and statements suggest that he thinks he can use the European Union as a whipping boy to drum up domestic support and maintain his country’s membership in the union. That is a fantasy.
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