Brendan Simms writes: When the Greek crisis first blew in 2010, there were widespread fears that if Greece defaulted on its public debts, contagion would bring down banks across the eurozone and destroy the market for government bonds in the next-in-line states, such as Italy, Spain, Portugal, and perhaps even Ireland.
To be on the safe side European officials and banks have spent the last five years quarantining Greece so that any fallout could be safely contained and a G2K avoided For this reason, the European Union provided emergency bailouts for Greece, writing down a substantial proportion of the debt in return for commitments to reform state and economy.
In some sense, contagion will probably be contained. Sunday’s referendum was framed by the Greek government as a vote against austerity, not against Europe or even the euro. Observers must thus deal with the paradox that some of the most pro-European Greeks (along with many extreme leftist and rightist anti-Europeans) voted against the bailout deal. Greek Prime Minister Alexis Tsipras and his Syriza party want a return to the drachma. They know that most of Greece wants to stay in the euro, so they will not be in any hurry to leave it. Much better to wait until Brussels forces them out. Athens will play this game, in which the resignation of Yanis Varoufakis as finance minister is only the latest move, to the bitter end.
It may be that the financial contagion in Europe can be contained, but the strategic and political contagion will be immense. Unless it also leaves the EU, Greece may become an open door, as some Syriza ministers have already threatened, through which migrants pour in. The country will drift even more into the Russian orbit, with potentially fatal consequences to the EU’s common foreign policy, especially its sanctions over Ukraine. Above all, the irreversibility of monetary union will be called into question, with huge implications for all kinds of political and economic bets placed over the past three decades. No amount of modeling can quantify the likely damage to the union, but it will be colossal and perhaps fatal to deeper integration.
Either way, the Greeks are faced with an impossible choice: either to agree to an austerity program that is crushing the life out of its young people and its weakest or to return to the failed national politics that got the country into this mess.
