By the end of this month Greece could be bankrupt, its banks drained of every last euro by panicking depositors, government salaries unpaid and foreign credits for essential imports suspended. At this point Greece's only option would be to abandon the euro and resurrect the former currency, the drachma, the value of which could better reflect the strengths and weaknesses of the economy. It would also be open to having its value more closely controlled by the government and central bank.
Yet neither its fellow eurozone countries, nor its new socialist Prime Minister Alexis Tsipras wants Greece to abandon the euro - a “Grexit” as it has been termed. Even so, there is now a clear danger that Greece will have to quit the currency, if only by mistake.
There are two seemingly irreconcilable issues. The first is that the EU, which has poured billions into supporting Greece's ability to repay its creditors, is not prepared to lend a further cent unless Greece actually implements a radical reform program that it promised to undertake in return for that European financial support.
The second is that the new Tsipras socialist government won power on promises to end punishing austerity and force the Europeans into widespread debt forgiveness. As former EU commission president Jose Manuel Barroso said this week, these promises were completely unrealistic. Indeed it is probable that other eurozone countries, in particular the Germans who have set their face against any major easing of Greece's obligations, assumed that the new government would arrive at the negotiating table with a quietly flexible position on what would be purely cosmetic changes to the current financial reform demands.
But far from being accommodating, the Tsipras government turned up at the talks with aggressive plans that were custom made to incense conservative eurozone countries. Tsipras has taken the view that his mandate from the Greek people outweighs the views of other eurozone countries. Greece is demanding special treatment when other eurozone economies, not least Ireland and Portugal, have swallowed the bitter austerity pill which, certainly in the case of Ireland, has finally worked.
The Greek argument is further weakened by the fact that the country has failed to honor its promises to reform its shambolic financial system, with a massive government payroll, loss-making state industries, huge and over-generous pension obligations and almost universal tax cheating. In such circumstances, eurozone countries can with some justice ask themselves why they should help the Greeks when they will not help themselves.
This is a Greek tragedy in the making. And the Tsipras government has not made the crisis atmosphere any easier by choosing this moment to launch a demand that Germany pay war reparations. Though there is merit in the claim itself, there is no merit whatsoever in the timing. It is designed to hearten Greek voters by infuriating the Germans, whose leader Chancellor Angela Merkel has been likened in the Greek press to Adolf Hitler. As such it is an entirely negative, not to say dangerous, stunt.
At a critical time when statesmanship and good faith are absolutely necessary, Athens is coming up with grandstanding politicking of the basest order. Tsipras and his ministers have limited experience of government and, it seems, still less understanding of the ramifications of international finance. Unless they produce a radical change of course, Greeks will be using the drachma again, probably before the year is out, and they will be discovering that their country is incapable of borrowing anything in the world capital markets. Then will come far worse austerity.
