Greek Prime Minister Alexis Tsipras’ decision to call a referendum on the latest plan for handling Greek debt—to which his government is urging the public to vote “no”—brought to a shocking end a week that started with high hopes of a compromise agreement between Greece and the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). Many observers had long seen a referendum in the cards, but they expected Tsipras to call one in order to seek public approval for an agreement that he actually backed in order to outflank the far left within his own Syriza party. Instead, the man who argued for months that an agreement with Europe was the only possible path forward appears to be declaring “game over” with time left on the clock.
The odds of Greece leaving the eurozone have now substantially increased. Throughout the talks, Greece and its creditors have been desperately seeking ways around the political roadblocks in front of them. Syriza has promised that Greeks won’t have to choose between ending austerity and remaining in the eurozone. That, the politicians reassured voters, was Greece’s “democratic choice.” But the country’s principal creditors—other European governments—also face political pressures, and Syriza has done little to assuage concerns in Europe’s parliaments about throwing good money after bad and creating a moral hazard for future debtors.
With those two positions fundamentally at odds, and neither side willing to budge, a clean break between Greece and the eurozone might seem like the best option for Syriza and for many eurozone finance ministries. But the possibility of a clean break is an illusion.
Geography is particularly important. Greece lies at the heart of southeastern Europe, Europe’s least stable neighborhood. There are already signs that Bulgaria and Serbia are vulnerable to contagion from the failure of Greek banks. Instability in the Balkans was part of the rationale for Greece joining the eurozone in the first place. Full
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