The Greek Crisis: Europe’s Final Countdown

Indeed, it’s rare to be able to reference pop music in the context of history-defining international affairs. (See TG’s recent coverage of Greece here)

When I woke up this morning and heard “The Final Countdown” by the Swedish big hair, 80s rock act “Europe,” both the song title and band name seemed particularly apt.

As did the lyrics: “We’re leaving together, but still it’s farewell. And maybe we’ll come back to Earth, who can tell? I guess there is no one to blame. We’re leaving ground. Will things ever be the same again?”

The this-is-it summit

After five years of seemingly endless, fruitless deliberations, one could be forgiven for feeling blasé about yet another emergency summit convened in Brussels to try definitively to resolve the Greek debt saga. But it’s no longer a case of crying wolf. This is it.

Tuesday’s meeting of the Eurogroup and Eurozone heads of government meeting may well be the last chance for Greece and the European Union to see eye-to-eye and to create history in one way or another.

For all the grandstanding and butting of heads, Greece and the EU both essentially want the same thing — for Greece to remain in the euro zone.

But how to accomplish this before Greek banks run out of cash and the financial system collapses is among the unprecedented challenges facing Europe today.

Euphoria on the streets of Athens post Sunday’s referendum has quickly yielded to certain grave realizations. Chief among them is that Greece’s ground realities remain unchanged.

Greek banks are still perilously close to running dry. And the Greek government still desperately needs a new bailout deal to avoid a return to the drachma.

Democracy versus regulation

While Sunday’s emphatic “No” vote delivered Greek Prime Minister Alexis Tsipras a strong mandate to renegotiate with creditors, it holds little water in the face of EU regulation.

According to current procedures, any new bailout or debt restructuring for Greece would — first — need the approval of certain EU national governments and — second — take weeks, if not longer, to execute.

As things stand, it’s hard to see how earlier Greek government promises to reopen banks by Tuesday and strike a deal “within 48 hours of the referendum” can be kept.

Crucially, it’s unclear for how long the European Central Bank (ECB) can continue keeping Greek banks on life support with its emergency funds.

One of the reasons EU officials were hoping for a Yes vote on Sunday was because it would have given the ECB grounds to keep Greek banks afloat until a deal was formally reached.

However, the ECB now faces the unenviable task of deciding if it can bend its own rules, given Greek banks are widely considered insolvent and its government is no longer part of a bailout program.

Greek citizens’ current withdrawal limit of 60 euros a day since June 29 cannot be guaranteed without fresh liquidity.

Semantics and precedent

One factor playing in Greece’s favor is the lack of an official procedure for a country to leave the Eurozone. When writing the rules to form the euro currency union in the late 90s, no legal instruments were envisaged for a member country to exit.

Semantics apart, the main worry for Brussels is what kind of precedent this would set.

Greek leaders hail the referendum as a victory of democracy. But the fact is the Eurozone is made up of 18 other democracies, whose governments and people would argue they, too, have over the years made tough sacrifices in the name of fiscal discipline.

How to pit one democracy against 18 others? How to justify to people in the rest of the Eurozone that their taxes are being used to try and offset the gross financial irresponsibility of previous Greek governments?

What is the credibility of a country that has defaulted on its debt repayments six times since the fall of the Ottoman Empire, most recently to the IMF on June 30?

What next?

The battle lines are drawn. Germany and France have indicated to Greece that the door remains open for talks.

Two likely scenarios emerge: Either Greece is allowed to temporarily exit the Eurozone, devalue its currency and strengthen its finances. Or an advanced integrated fiscal union is embraced where all outstanding Greek payments are absorbed into a larger pot of EU-backed debt.

Any other solution would only be a stopgap measure. Europe would be simply kicking the can down the road, with lots more Greek drama guaranteed in the future.

Both options will take time however — time Greece may find it has run out of.