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05/14/2012 11:55 AM

Time to Admit Defeat

Greece Can No Longer Delay Euro Zone Exit

After Greek voters rejected austerity in last week's election, plunging the country into a political crisis, Europe has been searching for a Plan B for Greece. It's time to admit that the EU/IMF rescue plan has failed. Greece's best hopes now lie in a return to the drachma. By SPIEGEL Staff

There are many things Alexis Tsipras likes about Germany. The leader of Greece's Coalition of the Radical Left (Syriza) party drives his BMW motorcycle to work at the Greek parliament in the morning, Germany's über-leftist Oskar Lafontaine is one of his political allies, and when it comes to his daily work, his colleagues have noticed a certain tendency toward Prussian-style perfection.

Tsipras could easily count as a friend of the Germans, if it weren't for the German chancellor. Greek magazines have frequently caricatured Angela Merkel dressed in a Nazi uniform, because she imposes her fondness for balanced budgets and austerity on the rest of Europe. The Greeks, says Tsipras, want to "put an end" to the Germans' requirements and their "brutal austerity policy."

Tsipras is the new political star in Athens. While the country's washed-up mainstream parties struggled for days to form a new government, the clever young politician has been dominating the headlines with his coalition movement of Trotskyites, anarchists and leftist socialists.

In the recent elections, Tsipras' Syriza party advanced to become the second-largest political force in the country, and Tsipras is making sure his gray-faced opponents from the Greek political establishment know it. Surrounded by cameras and microphones, he stood in the Athens government district last Tuesday, put on his winner's smile and called upon the two traditional parties, the center-left Socialists (PASOK) and the conservative New Democracy, to send a letter "to the EU leadership" and cancel the bailout deal that Athens made with the EU and the International Monetary Fund (IMF).

Tsipras knows what many Greeks are thinking. At the end of last week, his poll numbers rose to a new record level of almost 28 percent.

Turning Point

Two years after the government in Athens requested the first emergency loans in Brussels, the European debt crisis is reaching a turning point. Europe and the international community pumped about €240 billion ($312 billion) into the Balkan nation, government employees were let go, pensions were slashed and a series of restructuring programs were approved.

But even though the country is virtually being governed by the European Commission and the IMF, Greece's debts are higher than ever and the recession is worsening. As the political situation becomes increasingly chaotic, new elections seem all the more likely.

At the Chancellery in Berlin, the television images from Athens now remind Merkel's advisers of conditions in the ill-fated Weimar Republic of 1919-1933. Back then, the Germans perceived the Treaty of Versailles as a supposed "disgrace." Now, the Greeks feel the same way about the austerity measures imposed by Brussels. And, as in the 1920s in Germany, the situation in Greece today benefits fringe parties on both the left and the right. The country's political system is unraveling, and some advisers even fear that the tense situation could lead to a military coup.

Greece has been in intensive care for years, but the patient, instead of recovering, is just getting sicker and sicker. In a confidential report, which SPIEGEL has seen, experts from the IMF arrive at a devastating verdict. The country, they write, has only "a small industrial base" and is characterized by "structural incrustations" and an "excessively large role of the public sector."

In Greece's Best Interest

It's time to rethink the treatment. The Greeks were never ready for the monetary union, and they still aren't ready today. The attempt to retroactively bring the country up to speed through reforms has failed.

No one can force the Greeks to give up the euro. And yet it is now clear that withdrawal would also be in the country's best interest.

It isn't a matter of abandoning the Greeks. Greece is and remains an important part of Europe. A Greek withdrawal from the euro will have serious social, political and economic consequences -- mostly for the Greeks, but also for the rest of Europe. The continent's solidarity is not tied to the euro, which is why other European countries will still have to support Greece with massive amounts of money.

But only a Greek withdrawal from the euro zone will give the country a chance to get back on its feet in the long term. The Greeks would have their own currency once again, which they could then devalue, making imports more expensive and exports cheaper. As a result, say American economist Kenneth Rogoff and others, the Greek economy could become competitive again.

At the same time, a Greek exit from the euro would send a strong message to other financially ailing countries, namely that Europe cannot be blackmailed. Populist politician Tsipras is merely expressing views that are already widespread within large segments of the Athens establishment, namely that the Europeans will ultimately give in and pay up, because they fear a Greek bankruptcy as much as people in the Middle Ages feared the Black Death.

Regaining Dignity

If the euro-zone countries do give in, the pressure for reform will also decline in the other crisis-ridden countries. If that happens, their debts will continue to rise, investors will flee from the euro and the entire currency union could break apart.

There are no provisions in the regulations of the monetary union for the withdrawal of a member state, and the euro partners cannot force a member to withdraw. But what else can the Greeks do if the Europeans remain truly adamant and insist that Greece satisfy all conditions attached to further aid?

In the end, a Greek withdrawal could only be the result of negotiations, prompted by the realization that it would enable the country to regain its national dignity. If Athens clung to the euro at all costs, it would remain dependent on the international community for decades to come. In contrast, regaining its own currency would enable the country to decide on its own fate.

Reforms Have Ground to a Halt

An exit from the euro zone would be the prerequisite for the political new beginning that the country's reformers believe is inevitable. One of those reformers is Gikas Hardouvelis, 56, the chief adviser to transitional Prime Minister Lucas Papademos.

His job description was easy to write but difficult to fulfill: He was supposed to ensure that Greece remains in the euro zone. Since the end of November, Hardouvelis has had possibly the most beautiful office in the country. The Maximos Mansion, next to the National Garden in downtown Athens, is the prime minister's grand official seat.

But since taking office, the economist has also had a mission which could well be described as impossible: to revamp a country that has been completely mismanaged.

Until last summer, the total number of government employees wasn't even known, nor was the number of government agencies, which were often established for the sole purpose of concealing the enormous expenditures of certain ministries.

Devastating Conclusion

When Hardouvelis began working as chief adviser to the prime minister, the reform process was supposed to be in full swing already. His first step was to count the laws that had not only been passed but had actually been put into effect. "It was a very small number," Hardouvelis recalls.

After two years, Hardouvelis came to a devastating conclusion about Greece's economic, political and social situation: Almost none of the government's reform efforts have been a success.

The privatization of state-owned companies, which was intended to help fill up empty government coffers, has hardly even begun. Of the €50 billion in anticipated revenues by 2015, the program has only generated €1.6 billion to date.

The sale of real estate holdings, in particular, is more difficult than expected. Until recently, the Greeks were almost wholly unfamiliar with the concept of the land registry. After over 10 years of efforts to develop such a registry, only 6 percent of all real estate has been entered into the system.

The liberalization of restricted sectors of the economy has also ground to a halt. Symptomatic of this failure is the plan to open up the services of architects, lawyers and shipping agents to competition. There are roughly 140 so-called closed professions; no one knows the exact number. The members of these professions received the licenses for their profitable activities under the former military junta, and they are passed on from generation to generation or sold for a lot of money. Sums of €100,000 to €150,000 are not uncommon for the purchase of a taxi license in Athens.

Furious Reaction

The system seemed to have come to an end in the early summer of 2010. After only a few months in office, the Socialist government enacted a law to liberalize the closed professions, which were expected to become open to competition in the free market in the future.

Professional groups like pharmacists and taxi drivers reacted furiously by going on strike. In the early summer, freight forwarders used their trucks to block major roads, bringing the entire country to a standstill -- at the height of the tourist season.

The efforts to protect the vested rights of many professions were successful, and the protesters secured transition periods, special rules and exceptions. As a result, the professions are still virtually closed to outsiders today.

In addition, large parts of the government administration are still in agony. One of the new miracle weapons that the European Commission is keeping ready for the European economy was also supposed to be used in Greece: so-called project bonds. They would have enabled private investors to hedge against the risks of investing in major trans-European infrastructure projects.

But there is not a single Greek project among the construction projects that the European Commission has proposed for the pilot phase this year and next year. It isn't as if the officials in Brussels did not have every intention of finding a project in Greece that could be implemented quickly. The new stimulus program was intended to drum up €4.5 billion in investments in Europe in the short term. But the Greeks also had to fit the requirements for the scheme. Now the subsidies will go to the Baltic countries.

Tricking the Troika

The only progress, albeit modest, that the Greeks have to show for themselves is in the fight against the budget deficit. To this end, the value-added tax was raised from 19 to 23 percent, several new taxes on luxury goods and special duties were introduced, pensions were cut by 15 percent and the salaries of government employees slashed by 30 percent or even more.

Through these efforts, the budget deficit was reduced by an impressive 7 percentage points. A historically unparalleled debt haircut, in which 95 percent of creditors relinquished 75 percent of their claims, also brought some relief. Nevertheless, the successes of the debt reduction effort remained modest. Despite creditor participation, the country still suffers from a debt burden of 160 percent of gross domestic product, which threatens to suffocate the country in the long term.

This is aggravated by the fact that the established ruling class has no interest in the reforms being a success. To accommodate the programs called for by the so-called troika of the European Commission, the European Central Bank (ECB) and the IMF, laws were established that could not work, "because the relevant cabinet ministers didn't want them to work," says Hardouvelis.

According to Hardouvelis, it is very clear that members of the former administration tricked the troika, and valuable time was lost as a result. "They thought the party would somehow go on," he says. And they behaved accordingly.

Little Interest in Reform

One of the peculiarities of the Greek state is that, although there are 32 laws on deregulation, there is in fact no deregulation in reality. Greece routinely ranks poorly on the World Bank's Doing Business index. Neither the troika nor the local EU Task Force for Greece, whose goal is to actually implement reforms, have been able to change this.

Officials from the Greek Interior Ministry complain that the ministers are usually the ones getting in the way of progress. "We have to fight with our own bosses when it comes to administrative reform," they say. There is a rumor that the minister of public administration advised the environment minister to agree to the troika's proposals, but not to implement them.

The international envoys and the EU Task Force staff members are familiar with many such examples, as are those ministerial officials who truly want to change things and have given up on the old system.

Most politicians have very little interest in reform, says Hardouvelis, whereas the general population is more willing to change. "The Greeks want their government to work, and they want it to be more equitable," he says. Like Italy, Greece currently has a technocrat, Papademos, as (interim) prime minister. But unlike in Italy, the ministers in Greece unfortunately stayed the same -- in other words, the same old politicians are still in charge.

High Price

It's no surprise that the EU and IMF reform plans have failed so far, given that the people who were responsible for the country's problems were expected to solve the crisis.

It is difficult to explain to a deeply frustrated population that while ordinary people are supposed to change, and have to pay more taxes and receive less income, the political class continues to occupy key positions and can keep doing as it likes.

The policy of austerity and drastic cuts has a high price. Domestic demand plummets, the economy shrinks, new holes open up in the budget and further cuts become necessary. The result is a downward spiral from which the country cannot extricate itself without outside help.

The Only Way Is Down

Greece is now in the fifth year of recession. Economic output has shrunk by a fifth, unemployment is at almost 22 percent and youth unemployment is at more than 53 percent. The ranks of the unemployed grew by 95 percent between March 2008 and March 2011.

For the first time in postwar history, there are more people out of work than employed in Greece. The minimum monthly wage was reduced to €585, and was even brought down to €490 for younger workers. The monthly unemployment benefit was reduced from €461 to €385, and benefits are discontinued after a year. At the same time, more and more new taxes are being levied. One, for example, is the charatzi, a special tax on real estate collected through electricity bills.

All the same, according to reports by the IMF, wages in Greece are still significantly higher than in Portugal or in neighboring Balkan countries like Bulgaria and Romania.

A Vote Against the Political Class

There is little movement -- and when there is, it is downward. This explains why the election success of the smaller, more radical parties is not just a vote against the hated austerity policy and the so-called memorandums, as the loan agreements with Greece's creditors are dubbed. Most of all, it is a vote against the ruling class, which shamelessly took advantage of its power for so long.

Radical parties garnered more than 42 percent of votes. This shows how much trust the established parties have lost with the Greek public. For years, Greeks voted for either PASOK or New Democracy, but now they no longer believe their promises. Alexis Tsipras did particularly well in major cities.

The Greeks are fed up with their political establishment, which appears to firmly believe that the state's raison d'être is to allow them to line their pockets and enlarge their own sphere of influence.

The two candidates of the major parties, Conservative Antonis Samaras, 60, and Socialist Evangelos Venizelos, 55, are part of this establishment.

Ludicrous Farce

The two men have been professional politicians -- a term that is now perceived as an insult in Greece -- for decades. Samaras has been a cabinet minister three times and a member of the Greek parliament since 1977. Venizelos has held eight cabinet posts since 1990.

Samaras' campaign was a ludicrous farce, difficult to surpass in its political miscalculation and overconfidence. In defiance of all polls, he campaigned on the expectation that New Democracy would govern alone, and he made election promises that could easily compete with those made by Tsipras. "His rhetoric is straight out of a 1985 campaign manual," the newspaper Kathimerini scoffed.

Just how cluelessly Samaras has acted in the public sphere as head of New Democracy in the last two years is also reflected in the fact that he was the one who pushed for the new elections that have now dealt him this humiliating defeat -- and will likely put an early end to his political career.

Venizelos, on the other hand, a former finance minister and a sort of emblem of the crisis, who was responsible for finally curbing the tax flight of the rich and the super-rich, is also responsible for a highly controversial law that codifies the immunity of ordinary members of parliament. In supporting the legislation, he essentially endorsed corruption at the highest political levels.

A Nightmare for Business

Greece is caught in a uniquely Greek vicious circle. Hardly anyone wants to invest in a country that is not only bankrupt, but is also seen as highly corrupt.

Aris Syngros, who has been trying to market his country for the last year, is also aware of this problem. The gray-haired Syngros, 52, who is wearing a gray suit with a purple pocket square with yellow polka dots, runs an economic development agency connected to the Economy Ministry. The agency is called "Invest in Greece," and its logo looks like a stylized tree with a large amount of fruit.

Seen in this light, Syngros is at the forefront of the campaign to overcome Greece's poor image as a place for investment. The country is viewed as a nightmare for entrepreneurs, a place where it can take years to obtain something as simple as a license.

If Syngros has his way, all of that will now change. There has even been an expedited approval process for large projects for the last year. Nevertheless, Greek government agencies, with their Kafkaesque structures, sometimes even drive Syngros to desperation. It recently took two months until all required signatures had been appended to the minutes of a meeting of the relevant committee of ministers.

But the main problem is that investors are hard to come by. "They shy away from the sovereign risk," says Syngros. As an example, there has been only one taker so far for an extremely attractive loan set up for that purpose by Germany's KfW development bank.

New Beginning

For Syngros, a withdrawal from the euro would be a nightmare. But things cannot continue in the current vein. Experts are increasingly realizing that it will be difficult to attract foreign capital to the country under the current conditions. But an economic new beginning, including a renaissance of the drachma, could change that.

If the currency is devalued, it will become cheaper to buy Greek companies and operate them profitably. This could stimulate investment, say proponents of a Greek withdrawal from the euro in Brussels and Berlin.

Europe's governments have expanded their bailout funds to protect other southern European countries like Spain, Portugal and Italy, and private creditors have largely withdrawn from Greece. Under pressure from Berlin, Paris and Brussels, and after months of negotiations, banks, insurance companies and other investors waived almost 75 percent of their total claims of €206 billion against the Greek government in early March.

Billions of losses in Greece have spoiled the bottom lines of many financial companies. But because the debt haircut was so long in the making, the banks were able to digest their bad Greek bonds in small bites without getting into trouble themselves.

The banks complained that they were forced to agree to the supposedly "voluntary" haircut. But if Greece now withdraws from the euro and Athens can no longer service its debt, private-sector creditors will benefit from the fact that they have already survived the worst.

"The direct costs of a Greek government bankruptcy are manageable for private creditors," says Jürgen Michels, chief economist for Europe at Citigroup. Furthermore, only a portion of the remaining debt lies with banks and insurance companies in the euro zone, while the rest has been taken on by speculators outside Europe. This is why a bankruptcy would probably not severely affect the European banking system.

Scenarios for a Greek Exit

European leaders are now convinced that a Greek withdrawal from the monetary union would be manageable. "The risks of contagion are no longer as great as they were a few months ago," says Luxembourg's Finance Minister Luc Frieden.

European leaders, at any rate, are no longer willing to depend on the foresight of Greek politicians, and so they have instructed their experts to make preparations for the worst-case scenario. For around the last year, a "Greece Task Force" appointed by German Finance Minister Wolfgang Schäuble has been developing a possible exit resolution. Isolated from the rest of the German Finance Ministry, the group is working out models and scenarios on the potential consequences of a withdrawal, both for the rest of the euro zone and for Greece itself.

The task force's most important conclusion is that a large share of Greece's debt is now held by public creditors, most notably the ECB. According to Finance Ministry officials, the Frankfurt-based monetary watchdogs hold between €30 billion and €35 billion in Greek government bonds.

These holdings become dangerous if Greece stops servicing these debts because it is no longer receiving any money from the European bailout funds. This is why crisis experts in Berlin have dreamed up a particularly cunning solution for the problem. They don't want to completely cancel the tranches from the aid packages the Greeks are scheduled to receive. Instead, under their proposal, the country would have to do without the portion of the aid that was meant to flow into the government coffers to cover pensions, public sector wages and other expenses. But the billions that are earmarked to service the bonds held by the ECB would be paid into a special account, thereby averting problems at the central bank. In return, the ECB has already signaled its intention to resume its program to buy up the government bonds of other debt-ridden countries if they come under pressure following a Greek withdrawal from the euro.

The mechanism essentially amounts to the European Financial Stability Facility (EFSF) paying for up to €35 billion of Greece's sovereign debt. The last bond held by the ECB matures in 2030.

Of course, the EFSF's claims against Greece will remain in place, but the only question is whether the country will be capable of honoring its obligations. EU experts are convinced that it will certainly not be in that position during the initial period following the introduction of a new currency. The country's euro-denominated debts would suddenly turn into foreign-currency debts, and would multiply as a result.

Not Abandoned

Even if the Greeks withdraw from the monetary union and receive no further support payments from the European bailout funds, they will not be abandoned. If Greece remains a member of the EU, it will be entitled to the same type of assistance other EU countries can receive when they are in dire financial straits. Latvia, Hungary and Romania have received such assistance in the past, for example.

This is not necessarily disadvantageous for the euro-zone members. "Then it won't just be the member states of the euro zone paying for Greece," says a senior German government official, who preferred not to be named. "In fact, all 27 EU members, including Great Britain, will have to make their contribution."

While the exit would be turbulent for the rest of the euro zone, it would be a matter of life or death for Greece. EU diplomats in Brussels paint a dramatic picture of the challenges the country will face if it gives up the euro. No one wants to talk about it on the record, so as not to further fuel speculation on the financial markets. Nevertheless, the emergency plans have already been developed. "Of course we have something ready," says a top official familiar with the matter.

First of all, say officials in Brussels, Greece would have to introduce capital controls. Well-heeled Greeks are already believed to have moved €250 billion abroad, which could hardly have been prevented in a free internal market with a common currency. But if the drachma is to be reintroduced, the Greek authorities will do everything possible to stop the transfer of euros to other countries.

Police Guarding Banks

The introduction of the new, old currency will require detailed planning and execution. Money presses will have to produce the drachma notes. "The banks will have to close for a week until the new currency can be distributed," predicts one of the senior EU officials, who spent months studying how other countries reformed their currencies.

Experience has shown that, in such cases, police units are posted behind sandbags at bank branches. During the transition period, cash dispensers would only spit out €20 or €50 a day, so that customers could buy the bare minimum in daily necessities.

The introduction of the new currency would begin with a sort of mandatory exchange period, during which the Greeks' euro assets would be exchanged into drachmas at a fixed rate. Pensions and salaries would only be paid out in the new currency.

EU officials are preparing for the possibility that the Greeks would then no longer be able to fulfill their obligations within the EU, at least temporarily. For instance, the country, as a signatory to the Schengen Agreement, monitors the external borders of the EU. If there is a currency devaluation, customs agents will have other priorities, at least in the short term.

'Turbulence'

It would be the first time in postwar history that a Western European country declared bankruptcy and introduced a new currency. The organizational challenges are considerable, but the economic consequences would be even greater.

If the drachma returns, it will drastically lose value against the euro, with experts expecting a devaluation of at least 50 percent. Insiders say that a loss of up to 80 percent is even possible. Banks and companies with foreign debts denominated in euros could no longer service them and would have to file for bankruptcy.

As a result, Greece would plunge into an even deeper recession. The IMF estimates a decline in economic output of more than 10 percent for the first year following the return of the drachma. This would set the country back by years in economic terms.

But after that, according to the IMF, the Greek economy will grow even faster than it would without the devaluation. "The turbulence could last one or two years," says Hans-Werner Sinn, president of the influential Munich-based Ifo Institute for Economic Research. But after that, he adds, things will improve again.

The professor's prognosis is based on two assumptions. First, because imports will become more expensive, the Greeks will buy more domestic products, eating Greek instead of Dutch tomatoes, for example. At the same time, the country's exports will become cheaper, making it more competitive. The result: Greek olive oil will displace Spanish oil in German supermarkets.

Tourist Attraction

Many countries have successfully exported their way out of their plights in the past through currency devaluation: Sweden in the wake of the banking crash in the early 1990s, South Korea following the 1997 Asian financial crisis and Argentina after the end of the dollar regime in 2001. In all of these countries, the economy crashed initially, only to recover all the more vigorously in the end.

Greece can reduce its foreign trade deficit by exporting more and importing less. In the last decade, its trade deficit was at a near-record 10 percent. Even in 2010, when the crisis hit with full force, the country imported €32 billion more in goods than it sold abroad. As a result, Greece, supposedly an agricultural country, is still a net importer of food products.

Another economic sector on which many are pinning their hopes is also likely to benefit from the return of the drachma: tourism. A vacation in Greece has become too expensive for many foreigners. But with the new currency, the country could compete once again with its toughest rivals, Turkey and North Africa.

It's likely, but not guaranteed, that the economic renaissance will succeed. Many economists fear that the unavoidable chaos of a currency reform could overshadow its positive effects for a long time. Savers would lose a large share of their assets, the government would face the risk of collapse, Greeks could slide into poverty and Europeans could find themselves with a costly, long-term problem in the southeastern corner of the continent.

'Too Insignificant'

It wouldn't be the only bill coming Europe's way. More and more Greek debts have been assumed by the public sector in the last two years. In the wake of the March debt restructuring, private creditors, such as banks, insurance companies and hedge funds, now hold sovereign debt worth only about €100 billion.

There are also loans in the amount of €73 billion that were disbursed by the members of the euro zone and the IMF in the context of the first aid package for Greece. Now Athens has also received the first tranches from the second aid package. And then there is the roughly €35 billion in sovereign debt held by the ECB. It is unclear what will happen to the ECB's claims against the Greek central bank, the so-called Target-2 balances, which recently added up to about €100 billion.

The Fitch rating agency estimates that public-sector claims against Greece will grow to more than €300 billion this year. If the majority of these claims became worthless, the German finance minister alone would face a loss of tens of billions of euros.

This is a large amount, and yet most economists believe it is manageable. It would roughly correspond to the German government's net borrowing for this year. In other words, the economic damage of a Greek withdrawal from the euro for Germany would remain within limits. "The Greek economy is simply too insignificant for that," says the Oxford-based German economist Clemens Fuest.

Shrinking Risks

The conclusion is clear: The current strategy to rescue Greece has failed, but at the same time the risks of a withdrawal are shrinking. This makes it all the more important to take advantage of the opportunities of a new beginning, in the interest of both Greece and the euro zone. It would also make the euro zone more attractive to new members, such as Poland, with its strong economy. Foreign Minister Radoslaw Sikorski has already signaled Warsaw's desire to join the euro zone.

If Athens were to leave the euro zone, it would send a message that the fiscal and budgetary rules in the monetary union must be more closely adhered to in the future. It would also make it easier for the Europeans to implement the necessary resolutions to save the euro. In many countries, the situation in Greece only inflames the resistance to bailout funds and aid programs.

A comeback of the drachma would change this, so that it comes as no surprise that in Germany, in particular, many people are inclined to take a hard line on Greece. Horst Seehofer, the head of the conservative Christian Social Union, the Bavarian sister party to Merkel's Christian Democratic Union (CDU), has long called for a Greek withdrawal, and he now feels vindicated. If Athens were to reintroduce the drachma, it would be "neither the end of the euro nor the end of the EU," he says. "We must preserve Germany's economic strength. That's more important that Greece remaining in the euro zone."

The two other partners in Germany's ruling coalition are also sharpening their tone toward Athens. "Greece only has a future in the euro zone if its debts are consistently reduced and structural reforms are put in place," says Economics Minister Philipp Rösler, leader of the business-friendly Free Democrats. "A softening of, or deviation from, the established programs will not occur."

The EU's Biggest Test

Volker Bouffier, the CDU governor of the western German state of Hesse, also argues for strictly adhering to the current austerity course. "Greece has already received more money than was paid out under the Marshall Plan," he says. "The Greeks must treat the measures as an opportunity, or else they don't stand a chance."

But even with a comeback of the drachma, the Greek problem would not be solved by a long shot. A withdrawal from the monetary union would subject the EU to the biggest test in its history. It would have to continue supporting the Greeks to prevent the country from descending into chaos and anarchy.

One thing is clear: If Greece returns to the drachma, that will be the point when Europe's work really begins.

REPORTED BY SVEN BÖLL, MANFRED ERTEL, MARTIN HESSE, JULIA AMALIA HEYER, CHRISTOPH PAULY, CHRISTIAN REIERMANN, MICHAEL SAUGA, CHRISTOPH SCHULT AND ANNE SEITH

Translated from the German by Christopher Sultan

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