Greece plays an important strategic role in Europe. NATO is worried that a Greek exit from the euro area could pose a security risk to the alliance, “We need the stabilizing capacity of the European Union from all sides. If Greece falls out of that it’d be terrible. It does indeed have repercussions for” NATO, deputy Secretary General Vershbow told a security conference in Bratislava, the Slovak capital. Forcing the country out of the EU could drive it into the arms of Russia.
The two sides are far apart on what woul constitute acceptabel reforms that would release € 7.2bn in bailout funds and avoid default. German chancellor Angela Merkel said in Berlin that she “unfortunately” saw no sign of an easing in the deadlock between Athens and It’s creditors.
Failure to reach an agreement would, on the contrary, mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union. And manageable debt crisis, as the one that parts are currently addressing, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability.
All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy achieved over the years of its EU, and especially its euro area, membership. As the Bank of Greece had assessed in its Governor’s Report for the year 2014, “the conclusion of a new agreement with our partners is of the utmost importance to fend off the immediate risks to the economy, reduce uncertainty and ensure a sustainable growth outlook for Greece”.
In its report, the Bank of Greece claimed that failure to meet creditor demands would “most likely” lead to the country’s ejection from the European Union. From a legal standpoint, however, even if the country violates the treaty, Greece would still be a member. Under Article 50 of the EU treaty, a country can withdraw its EU membership. Since euro membership is only open to EU countries, Greece would automatically fall out of the currency area if it left the political union.
But here too, there’s a catch: Article 50 stipulates that countries engage in a two-year negotiation with Brussels before they can leave, time Greece doesn’t have. Trouble is, there’s no clear legal path for a country to exit the eurozone without leaving the EU first. EU treaties describe the eurozone as “irrevocable.”
If Greece defaults, it will have left European taxpayers holding the bag for more than €200 billion in aid. Offering Greece a special arrangement is likely to cause a further outcry in Germany and other EU countries. Greece leaving the euro would be a a complete disaster that would create a host of legal and administrative headaches for both Athens and Brussels.
In light of the outcome of the Euro Group meeting on 18 June, the EU president Tusk have decided to convene a Euro Summit on Monday 22 June at 19h00. The EU president have also invited the Presidents of the ECB, of the Euro Group and the Managing Director of the IMF to join us. It is time to urgently discuss the situation of Greece at the highest political level. The summit will not be the final step and there will be no detailed technical negotiations. That remains the task of the finance ministers.