Greece's D-Day

Greece's D-Day
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WASHINGTON -- Suddenly Greece is about a lot more than Greece.

The lopsided Greek vote -- 61 percent to 39 percent -- to reject the last rescue package from the country's creditors has cast their impasse into a high-stakes drama over the future of Europe. Greece itself is teetering on the edge of economic collapse. Its banks are virtually insolvent, limiting depositors to meager daily withdrawals of 60 euros ($66). European leaders have given Greece a five-day ultimatum (until Sunday) to reach agreement with lenders. If no agreement emerges, a chaotic situation will get worse. The government will exhaust its skimpy supply of euros and be forced to pay either in scrip (possibly including promises -- not reliable -- to convert the scrip into euros) or in a national currency, the drachma.

Just how much the new money -- or monies -- might be worth is an open question that would compound, at least initially, uncertainty and loss of confidence. As important would be the political fallout: the sense of betrayal that Greeks already feel toward the European Union for its failure to provide a safety net for a member country at a crucial moment. Among creditor countries (Germany, the Netherlands), the ill will is reciprocated. They blame the Greeks for their plight.

The mutual resentment threatens to transform European politics, as The Washington Post's Griff Witte has noted. What looms is a multinational blame game, with citizens in the 19-country eurozone (countries using the euro) and the larger 28-member European Union taking sides. "All across the continent," Witte wrote, "[political] parties that have rocketed to prominence with populist rhetoric celebrated what they saw as perhaps the most direct strike yet at the heart of the European order."

There is no simple way to defuse the situation. Both the Greek government under leftist Prime Minister Alexis Tsipras and the creditors -- mainly the European Central Bank, other European governments and the International Monetary Fund -- face limits in their room to maneuver. If Tsipras accepts too many of creditors' demands for spending cuts and tax increases, he will be seen as repudiating his own anti-austerity agenda. This would enrage his supporters. As for creditor nations, they are trying to navigate between two unwanted outcomes: either being too liberal in order to keep Greece in the eurozone; or being too tight-fisted to deter other countries from seeking similar treatment.

If they can't strike a deal with Tsipras, Greece will almost certainly continue to default on its debts and be forced to leave the eurozone (a process now called "Grexit"). No one really wants that, because it implies that other high-debt countries (Portugal, Italy, Spain) might one day leave the eurozone -- with all the uncertainty that implies. But worse for creditors would be capitulating to Tsipras. Other EU radical parties might then campaign for relief. There might be a chain reaction of protest, with Spain's left-wing Podemos Party being perhaps a starting point.

No one knows. The Greek crisis has repeatedly surprised. Both sides apparently miscalculated: The creditors, believing that they have the money that Greece needs, seem to have assumed that Tsipras would bow to this reality; and Tsipras and his former finance minister, Yanis Varoufakis, thinking that the creditors wanted to prevent any country leaving the euro, acted as if their brinksmanship would prevail. The question now: What are the lasting consequences of these blunders? 

In conclusion...

(c) 2015, The Washington Post Writers Group 

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