The latest episode of Greece’s debt drama is coming close to a tragic denouement of default and a “Grexit” — an exit from the eurozone.
At press time, Prime Minister Alexis Tsipras still had not struck a deal with Greece’s creditors, despite a looming June 30 deadline. If an accord is reached, it still needs approval from a Parliament seething over imposed austerity.
Greece’s economic collapse and estimated 25 percent jobless rate (50 percent for younger workers) is a life- and nation-changing event. Repaying the debt seems Sisyphean. So some Greeks want to default. Others fear things could get worse if Greece becomes untethered from the common currency used by 19 European nations.
That caution should prevail among Greeks, Europeans and international institutions that will write the next chapter (and check) of the Greek drama. Yes, tough trade-offs are necessary. But all involved should recognize that default is too big an economic and political risk for Greece, Europe and a fragile world. And geopolitically, an E.U. rupture would test the cohesion necessary to maintain Western sanctions on Russia for its illegal annexation of Crimea and aggression in Ukraine.
It would be hubristic to predict with precision the impact that default would have on the global economy. After all, few foresaw the rapid damage created by the 2008 collapse of Lehman Brothers. And the diplomatic fallout from a default may be more costly than keeping Greece afloat.
“No one wants to risk a default on Greece, because it would be too difficult to manage,” Andrea Montanino, director of the Global Business and Economics Program at the Atlantic Council, told an editorial writer. Montanino, formerly an executive director at the International Monetary Fund representing Greece and five other European nations, added, “No one wants to show that Europe is not able to deal with its problems and not able to stay united.”
Economically and organizationally, the European Union is in a stronger position to weather this crisis, Montanino said, and there is concern over the influence that Russia or China would have were either to bail out Greece. There’s also concern that economic chaos in Greece could make it more difficult for the country to respond to the Mediterranean migration crisis that eventually affects the entire European Union, not just its southern states.
Greek and E.U. leaders, as well as global markets, may breathe easier if a late accord is reached. But it would likely be a patch, not a fundamental fix, so leaders should work toward a more permanent solution that promotes growth in Greece and solidifies the European Union.
And on this side of the Atlantic, it would be wise to heed the lessons of Greece. America, too, has a debt problem, and it is not too big to fail. The problem was precipitated on a bipartisan basis. And however inconvenient to political narratives, it is the result of overspending and undertaxing. A more mature political process would come up with a fix before a crisis washes up on these shores.