Soft or Hard Landing
Next Stop: Grexit?

Everything old is new again: with bailout talks stalled, desperate Greeks are making a run on the banks in what Business Insider identifies as an eerie echo of past Greek crises:

Greece’s banks lost about €4 billion in bank deposits since the turn of the year as Greeks fear a return of capital controls that ban them from making cash withdrawals over set limits. Separately, the country looks as if it is tipping back into recession — GDP shrank by 1.2% in Q4 2016.

Does this story sound familiar?

It should. A collapsing economy followed by a run on the banks were the signal events of the Greek debt crisis that began in 2009 and never really ended.

So now people are asking — again — whether Greece might be forced out of the eurozone.

At this stage, the Greek debt crisis seems stuck in a cycle of eternal return, with Greeks and Germans alike perpetually clinging to their own comforting delusions to avoid uncomfortable truths: Greece will never be able to pay off its unsustainable debt load, and it cannot last in the Eurozone in the long term. The current chaos is just the latest manifestation of the refusal to cope with these realities, and prospects for Grexit now look more likely than they have since the summer of 2015.

The negotiators remain at loggerheads over fundamental issues: Greek Prime Minister Alexis Tsipras is battling the IMF over labor reforms and pension cuts, while the establishment in Brussels and Berlin refuses to accept the IMF’s insistence on Greek debt relief. If nothing gives, the IMF could decide not to participate in the bailout, effectively dooming it and raising the possibility that Greece would be forced out of the eurozone.

We have long argued that the best option is a negotiated soft Grexit, where Greece stays in the EU but leaves the Eurozone and receives the debt relief it badly needs to get back on a stable footing. But reaching that outcome would require the kind of sober analysis, political compromise, and forward-thinking leadership that is increasingly absent in Europe these days. The more likely outcome is a short-term bailout that kicks the can further down the road—or failing that, a chaotic and rushed Grexit that will serve no one’s interests.

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