As the end of the month looms, the Greek Government faces a deadline to make a 1.6 billion euro repayment to the International Monetary Fund. Events of the past several weeks have introduced new complications to these delicate negotiations and cast doubt over Greece’s continued membership in the eurozone. In late May, at the meeting of G7 finance ministers in Dresden, Secretary of the Treasury Jack Lew clearly expressed the American interest in the success of negotiations:
“It is profoundly in the interests of the US and European economies for the accident to be avoided. Brinksmanship is a dangerous thing.”
Unfortunately for the prospects of economic stability, brinksmanship seems to have been the favored strategy of both parties involved in negotiations. Despite widespread consensus from world leaders that Greece needs to make further reforms before any additional aid can be given, Prime Minister Alexis Tsipras and negotiators from the IMF and the European Commission have been unable to agree on the specific shape of those reforms.
On June 11, the team of IMF experts tasked with negotiating with the Greek government abruptly left the talks, as each set of negotiators described the other as unrealistic. With each side laying primary fault with the other, a positive resolution it is difficult to see at this time.
Prevailing sentiment around Europe holds that Greece’s exit from the eurozone is more likely than ever. Many officials – including government leaders and economic analysts – expect that the European economy is strong enough to weather a Greek exit with minimal disruption and are loath to establish a precedent of offering bailouts without policy concessions. In May, Secretary Lew warned against expressions of certainty about the aftermath of a Greek departure from the monetary union, saying:
“No one should have a false sense of confidence that they know what the result of a crisis in Greece would be.”
Negotiations with the IMF and EU representatives have given little reason for such confidence, feeding a serious run on Greek banks as once again talks failed to determine a solution to the crisis. Depositors fear that a Greek default would lead to the abandonment of the euro and the reissue of Greek drachmae, and they seek to avoid having their euro-denominated deposits converted to a less valuable currency. In an effort to stem the tide of withdrawals, the European Central Bank authorized further assistance to Greek banks, increasing emergency funding to 84.1 billion euros.
European leaders will meet again on Monday, and hopefully will come closer to an agreement to save the eurozone. Prime Minister Tsipras still believes that a deal can be reached, which would be good news for the future of the European Union as a stable and economically cohesive partner for the United States. Bond markets indicate that the rest of Europe may not be as insulated from the Greek crisis as many officials think, so the effects of a Greek exit are likely as unpredictable as Secretary Lew warned.