Will Greece exit from the Eurozone?
June 17, 2015
Since his victory in Greek elections on January 25, the message conveyed by Greek Prime Minister Alexis Tsipras has been consistent: he will put an end Greece’s “humiliation” caused by its creditors and their imposed austerity measures, and Greece will remain in the European Monetary Union. The question of whether he can accomplish both objectives will be shortly answered.
Prime Minister Tsipras has also been consistent in his firm belief that Greece has all the leverage in its relationship with its creditors – the European Commission, the International Monetary Fund, and the European Central Bank. Should Greece be forced to default on its loans due to misguided European policies, the Eurozone would cease to exist and economic catastrophe would befall Europe. European leaders would not risk that outcome, according to Mr. Tsipras’s reasoning, and therefore Greece’s creditors will and must pay.
Greece’s creditors, however, believe the exact opposite. European leaders believe they have the upper hand in this relationship and that their economic and structural reform demands must be met in order for Greece to receive additional funding. If the creditors fail to provide Greece with funds, Greece’s banking system will collapse, capital controls will be imposed, and Greece will likely have to return to its national currency, the drachma. Greek leaders would never risk this eventuality, and Europe has substantially strengthened its economic crisis mechanisms (mitigating the threat of contagion); therefore Greece will and must accede to its creditor’s demands.
Tomorrow’s meeting of Eurozone Finance Ministers will decide whether European leaders will hold an emergency summit over the weekend to discuss the Greece crisis. However, as both sides are at an impasse and remain distant in their positions, it is unclear what any additional meetings will resolve. Any decisions that are reached will need to be approved by national parliaments – a process that will take time as the June 30th date looms large and a 1.5 billion euro payment to the IMF comes due.
Two sets of headlights are coming at each other at full speed. Which car will swerve first?
Heather A. Conley is senior vice president for Europe, Eurasia, and the Arctic, and director of the Europe Program, at the Center for Strategic and International Studies (CSIS) in Washington, D.C
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