The Endgame in Greece


JUNE 19, 2015


Christine Lagarde, managing director of the International Monetary Fund. Credit Virginia Mayo/Associated Press                    

With default a real possibility on June 30, when Greece’s next debt payment is due, Greeks are draining their bank accounts as fast as they can. A record 1 billion euros was withdrawn on Thursday alone, putting major banks in danger of collapse. The Greek central bank darkly warned the government on Wednesday that failure to reach agreement could lead to “a collapse of all that the Greek economy has achieved” through membership in the European Union and the eurozone.
Greece needs to make a debt payment of €1.6 billion, or about $1.82 billion, to the International Monetary Fund by the end of the month, for which it needs to dip into its bailout fund. But Greece’s creditors — the International Monetary Fund, the European Union and the European Central Bank — are refusing to shell out another cent and are prepared to let the fund expire at the end of the month unless Greece agrees to some concrete reforms. The left-wing government in Athens, elected on an anti-austerity program, has balked. It has balked especially at any cuts to public pensions.
A deal is possible. It always is, as five years of brinkmanship have demonstrated. The real problem is that the sides have slid into profound distrust since Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis came to office. Over the past week, Mr. Tsipras accused the lenders of seeking to “humiliate” Greece and charged the I.M.F. with “criminal responsibility” for the debt crisis. When Thursday’s meeting collapsed, Mr. Tsipras flew off to a warm reception at a Russian business conference in St. Petersburg, blithely insisting that a deal was imminent.
There is no question that the conditions initially laid down by Greece’s creditors were foolishly harsh, helping to shrink Greece’s economy by 21 percent and swell unemployment to 25 percent. But Mr. Tsipras has not made the changes his nation needs for long-term stability, like curbing tax evasion, clientelism and bureaucratic inefficiency.
More dangerously, many on both sides have moved toward a belief that if Greece were to abandon the euro it would not necessarily be disastrous. It is impossible to predict with any certainty what would happen should Greece leave the euro, but most observers warn of devastation for Greek banks, politics and credibility. And for the members of the eurozone, a “Grexit” might set a tempting precedent for other weak economies, undermining a pillar of European unity. A majority of Greeks, moreover, want to stay in, and Chancellor Angela Merkel of Germany has made it clear that she does not want Greece out.
The meeting on Monday is far too close to the deadline for another useless display of acrimony and brinkmanship. The key to an agreement, as Christine Lagarde, the managing director of the I.M.F., put it, is “to secure a dialogue with adults in the room.”

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