No Should Mean No to Protect the Euro From Greece

JUL 8, 2015 7:25 AM EDT

By Mark Gilbert

Bloomberg

Even before Greece's referendum last weekend, European Union leaders said it would be interpreted as a vote on whether to stay in the euro. So it's curious that Greece has been given five more days to come up with a credible plan to receive another bailout package. It's also downright dangerous for the European project's future integrity.  While German Chancellor Angela Merkel doesn't want to preside over a fracture of the European Union's finest achievement, she needs to concede the inevitable: The euro will be better off without Greece, and Greece may well be better off without the euro.

Greek Prime Minister Alexis Tsipras didn't bring even a knife to yesterday's gunfight in Brussels. European Union leaders and finance ministers hauled their weary selves to Belgium in anticipation of reviewing new post-plebiscite proposals from the Greek government, yet Tsipras and his new finance minister Euclid Tsakalotos didn't bother to put pen to paper or digit to keyboard. Instead, they delivered a presentation that fell short of being a basis for discussions and left Merkel "not especially optimistic" of arriving at a deal.

Where are we left? Back in April, Citigroup comingled the words Greece and limbo to coin the phrase "grimbo." Unfortunately, that seems to sum up the current situation. Greece will apply for money from the European Stability Mechanism, and by Friday morning, Tsipras must detail his planned economic reforms, which EU leaders will review during yet another weekend summit. Paul Donovan, managing director of global economics at UBS in London, summed up the absurdity of the situation this morning:

After two emergency euro summits yesterday we now have a weekend emergency summit, a Sunday emergency summit and EU emergency summit. There must be an emergency.

It seems almost pointless to talk about deadlines given how many have blown past with no credible evidence of progress toward a resolution, and no consequences. At this point, it seems, no one will be surprised -- or perhaps even much concerned -- if Greece misses paying the 3.5 billion euros it's scheduled to repay to the European Central Bank on July 20. Remember that Greece is already in arrears to the International Monetary Fund after missing a $1.7 billion payment last week. A billion here and a billion there still doesn't seem to amount to real money in this increasingly surreal conversation.

The longer the wrangling goes on, with Greek banks shuttered and running out of cash, the deeper the humanitarian crisis  will become. I hope the recent rally that's pushed the value of bitcoins up by 20 percent in the past month isn't being driven by desperate Greeks trying to find somewhere to hide their money from their government's grasping hands.

Greece is no longer economically strong enough to remain in the euro (if it ever was). Better to admit now that its membership can be revoked. The more "last chances" Greece gets, the greater the danger that a political schism will emerge within the other 18 nations in the currency union.

"We have a Grexit scenario prepared in detail," European Commission President Jean-Claude Juncker said. It really is time for the EU to cut its losses and do a deal that lets Greece leave the euro with dignity and some semblance of hope for its economic future. The Greek philosopher Aristotle used the term catharsis to describe how the viewer of a tragedy is purged of pity and fear. That's exactly what the euro needs now.

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To contact the author on this story:

Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:

Mary Duenwald at mduenwald@bloomberg.net