Please Walk Calmly Towards the Grexit?

With Germany's denial of the extension for Greece's deadline on loan payments this week, it is becoming increasingly likely that Greece will exit from the Euro. The Greek debt talks have stalled on one question. Will Greece abide by the austerity terms that are a condition of its bail-out?

Earlier this week The True Blue Conservative published an article called "Death and Life in Greece" about the public health problems that austerity has contributed to inside Greece. When combined with the problems of unemployment (the Greek government is a major employer inside Greece) that austerity has already contributed to, the Greek public is unwilling to continue suffering austerity measures that are a condition of their bail-out. This sentiment was made clear when the people of Greece voted in the government of Alexis Tsipras, who ran on a platform that was strongly against austerity.

If the Greeks do not follow the austerity measures and Germany continues with its economic brinkmanship then Greece's exit from the Euro is very likely. However, this does not have to be the case. The terms of sovereign loans are often renegotiated. The original terms on which Greece was loaned money are not set in stone, especially when one of those terms, austerity, is the only major obstacle. The alternative to renegotiating the terms is to allow the Greek government to default, which is not in anyone's interest.

The one point that most parties involved in the negotiations agree on, including Germany and Greece, is that Greece needs to honor its debts. This is a solid foundation on which the terms of the bail-out can be re-negotiated. The first step to a possible solution is for Germany to reverse their position and grant Greece a short term extension on the loan deadline. The extension does not have to be a full six months, it can be shorter. This move allows all those involved in the negotiations a moment of calm that will allow cooler heads to prevail. A temporary extension will allow for the talks to continue and, increase the chances that Greece will pay its debts and, avoid default and exit the Euro.

Of course, both sides could maintain the status quo which will lead to the obvious result. However, Greece's default and exit from the Euro is only the short term effect. The long term consequences could be disastrous for the European Union and other global economies. Also, allowing Greece to exit from the Euro may send the wrong message, to other struggling economies in the Euro-zone, that the Euro-zone is a fair weather organization. Countries are welcome to it when their economies are doing well but, everyone is on their own when they need assistance.

Furthermore, weakness in the European Union at this time is deleterious for foreign policy. A strong European Union is key to preventing or countering any future aggression by Russia (the kind seen in Georgia and Ukraine) in European affairs.

The Euro is the first currency union in Europe that has been successful. Multiple previous attempts have been made and they failed. To risk the potential break up of the currency over debt repayment terms would be unfortunate, not only economically but, also geopolitically. The crisis with Greece is a significant challenge for the Euro-zone but one that they have the ability to overcome. The alternative to succeeding together is failing alone.