The Greek government has struggled to stand by obligations tied to 240 billion euros of rescue funding over the past two years. The country is clamoring for more help as efforts to reduce its debt to 120 percent of gross domestic product by 2020 fall short.
The IMF, which indicated in March it won’t commit more money to Greece, will make a decision on its next disbursement in late August at the earliest based on the troika’s findings, said two fund officials familiar with the situation in recent days.
Germany’s really behind all this willingness to cut Greece loose. The vice-chancellor of the country said he doubted Greece could be rescued and that he has a “lack of terror” over the possibility of a Greek exit.
Paul Krugman rebutted this today.
I’m not saying that Greece should be kept in the euro; ultimately, it’s hard to see how that can work. But if anyone in Europe is imagining that a Greek exit can be easily contained, they’re dreaming. Once a country, any country, has demonstrated that the euro isn’t necessarily forever, investors — and ordinary bank depositors — in other countries are bound to take note. I’d be shocked if Greek exit isn’t followed by large bank withdrawals all around the European periphery.
To contain this, the ECB would have to provide huge amounts of bank financing — and it would probably have to buy sovereign debt too, especially given the spiking yields on Spanish and Italian debt that are taking place as you read this. Are the Germans ready to see that?
I think this is both true and false. Krugman is right that there will be ramifications to Greece leaving the euro, felt mostly in those peripheral countries. At the same time, he correctly says that Greece can’t possibly just stay in the euro, and at some point you have to look at the desperate efforts to keep the currency union together and say that they simply prolonged pain for a lot of Europeans, while extending the ultimate cost of the inevitable crackup. The time has come for Europe to put down the band-aids. It would obviously be preferable for the ECB to step up and take on its responsibilities, but only that should take precedence over unwinding this deeply harmful currency union, which is doing such harm to so many.
There’s more in this roundup from Brad Plumer. In many ways this is a fait accompli: Germany will not lend Greece any more money, and Greece cannot possibly meet its budget goals amidst a depression. Sadly, I fear the status quo as much as a breakup of the eurozone at this point.