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

Photo Gallery: Time for a Sharp Grexit? Photos
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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).

Photo Gallery

5  Photos
Graphics Gallery: Greece by the Numbers
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.

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1. The only way forward
LondonCity 05/14/2012
Sadly Greece it will be painful but it is time http://worldeconomicreconstructionfoundation.blogspot.co.uk/2012/05/economic-solution-for-world-economy.html
2. Greece could pay with goods
Inglenda2 05/14/2012
We are told that should Greece leave the Euro Zone, the German tax-payer will be burdened by 80 Milliards of losses. The question is, why? Following the two world wars, for which Germany was given the blame, no financial mercy was shown to that country. It was expected to pay every penny back, plus interest, for the costs which other countries had incurred. The financial crisis in Greece is completely home made and therefore should be dealt with by the Greeks themselves. This does not mean of course, they should not receive help from other European states, but there is always the possibility for them to pay back their debts in the form of commodities, when currency is not available. Greek olives and wines, for example, are well known for quality. The writing off of foreign debts and the attempts to buy the friendship of other states, through huge amounts of financial assistance, are the main reasons for Germany's own current fiscal problems. Add to this the costs of German troops being stationed and used, in areas in which they have no justified reason to be, and it is easy to calculate how long it will be until Germany itself will need help.
3. A slight correction on the title
PHOEVOS 05/15/2012
You are right: It's time for Merkel to admit defeat. Germany can no longer delay abandoning her arbitrary terms. Dean Plassaras.
4. Not defeat
tnt_ynot 05/15/2012
Default day is near and it is overdue. But Angie shouldn't have to admit deafeat. She should embrace a late arriving sense of reality. More importantly she should use this revelation as a guide to other countries who should exit from the euro and if they don't Germany should drop out soon. Anthony http://euro-meltdown.blogspot.com
5. time for revolution in Greece
keksguru 05/15/2012
as I read that the "closed" professions are still closed, 2 years after the law of their liberation was introduced I feel that Greece needs a radical change. If politicians can't do that, military has to. It cannot be that taxi and truck drivers can force the gouverment... the only power of legislation is on the top and not on the bottom. If new laws come into force people have to follow, even if some of them do not agree. But same as in other countries, 1% is ruling everyting and the country doesn't develop. If these ever-gouverning structures are not overthrown nothing will change.
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