Make no mistake about the consequences of a breakdown. With an end to European support and consequent bank closures and credit problems, austerity will get far worse in Greece than it is today, and Greece will likely become a failed state to the great detriment of all its people and their leadership. Once Greece fails as a state, Europe will collect far less debt repayment than it would have with an orderly restructuring. And a massive northern emigration of Greeks will strain national budgets throughout Europe, not to mention the challenges that will come as Russia achieves a presence in Greece. The IMF is looking at by far the largest nonpayment by a borrower in its history. True, there are good reasons to think enough foam has been placed on the runway to prevent financial contagion. Yet, this was asserted with respect to Long-Term Capital Management, subprime mortgages and the fall of Lehman Brothers.
Diplomacy fails and catastrophes happen when nations are preoccupied with their own concerns and do not consider the political needs of their counterparts, becoming convinced that their counterparts won’t take yes for an answer. Here is an informed outsider’s judgment as to what needs to happen if disaster is to be averted.