It is in Germany’s paramount interest to keep the eastern frontier of Europe as far east as possible. The United States is already overextended in the Middle East and in East Asia. If Germany is to deter Russia effectively, it must gain the continuing cooperation of Greece and other NATO allies, like the Baltic countries, that because of proximity are potentially in the line of fire. But instead of heeding Mr. Obama, Ms. Merkel chose the path of humiliation.
.. If Prime Minister Alexis Tsipras was considering backtracking from key campaign promises, it was only right for him to consult voters at this crucial turning point. To encourage sober deliberation, Ms. Merkel should have urged theEuropean Central Bank to keep Greek banks open during the run-up to the referendum. But the Eurocrats did the opposite, using brute force — choking off the flow of cash — to impress Greece’s vulnerability on its voters.
.. But Ms. Merkel instead gave the I.M.F. the silent treatment, allowing Syriza to convince Greeks that a “no” vote was the only way to break out of the austerity trap. They rejected Europe’s bullying.
.. she should encourage the I.M.F. to mediate the increasingly bitter dispute.
.. It represents Germany’s last, best hope for avoiding a catastrophic re-entry as the unquestioned power on the Continent. Preventing the consolidation of such power in a single country (and in a single leader) was one aim of the European Union’s architects.
Greek Debt Crisis: Anil Kashyap, University of Chicago
The political contagion is much harder to assess. Perhaps if Greece emerges in better shape in the medium term, then other countries will follow. Tsipras was betting that this concern would be so powerful that Europe would never take this risk.
.. But, if the public sides with Tsipras government, then there will be a very sharp recession over the next few months. Tax collection is likely to collapse. The Tsipras government is unlikely to survive the economic collapse.
.. If the post-Tsipras government opts to proceed with the default, then the next big unknown is how long before the economy stabilizes. At some point Greece will be a very attractive tourist destination, and its goods that are no longer priced in euros will be more competitive, so at some point the economy will begin to turn around. Whether this takes months or quarters will depend on many decisions that are difficult to forecast now.
.. The IMF is likely to be criticized further for the recommendations it made, particularly in 2010. Perhaps it will be reformed to limit its discretion in lending. Traditionally the head of the IMF has been a European. That is very likely to change since many countries believe that Greece was treated preferentially because it was a European country.
.. The ECB can definitely continue even if Greece defaults. The ECB has provisions set aside to cover some losses. It also is making lots of profits on the bonds it owns (that it pays for with money that pays no interest). So the Greek losses per se are not a problem. A default by a larger country such as Italy or Spain would be very different
.. Greece should have defaulted in 2010. Its debt burden then was unsustainable and nothing since then has changed this. It is true that financial markets were much more jittery at that time, but the money that was raised to pay off the creditors in that bailout could have been diverted to support Greece and other weak countries. Once the bad rescue of 2010 was undertaken, it was inevitable that some form of debt relief was going to be necessary. Imagine how different the political dynamics in Europe would have been if the German and French banks had been explicitly bailed out.
Thomas Piketty: ‘Germany Has Never Repaid its Debts. It Has No Right to Lecture Greece’
ZEIT: So you’re telling us that the German Wirtschaftswunder [“economic miracle”] was based on the same kind of debt relief that we deny Greece today?
Piketty: Exactly. After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece. Instead, both of our states employed the second method with the three components that I mentioned, including debt relief. Think about the London Debt Agreement of 1953, where 60% of German foreign debt was cancelled and its internal debts were restructured.
.. ZEIT: Do you believe that we Germans aren’t generous enough?
Piketty: What are you talking about? Generous? Currently, Germany is profiting from Greece as it extends loans at comparatively high interest rates.
.. Piketty: Those who want to chase Greece out of the Eurozone today will end up on the trash heap of history. If the Chancellor wants to secure her place in the history books, just like [Helmut] Kohl did during reunification, then she must forge a solution to the Greek question, including a debt conference where we can start with a clean slate. But with renewed, much stronger fiscal discipline.
Will Angela Merkel Save the European Ideal?
If the E.U. is viewed as a remote and punitive body, one that can’t adjust its workings for a member country where a quarter of the population is out of work, its prospects are grim.
.. For Europe to return to the vision of shared prosperity on which it was founded, it needs to confront its debt crisis in a manner that offers all similarly afflicted countries—Ireland and Portugal, for example, as well as Greece—something more than the prospect of endless austerity.