Crisis in Greece: Europe Slowly Comes to Terms with Potential ‘Grexit’

Many in Greece and across Europe are coming to terms with the reality that the debt-ridden country may soon have to leave the euro.

With Greeks due to go to the polls tomorrow to decide whether to accept the terms of another bailout, and the country’s government urging a “No” vote, European leaders and economists have begun preparing the ground for a potential “Grexit”.

Too Close to Call

Latest polls show the “Yes” and “No” camps are neck-and-neck in tomorrow’s referendum. If the country votes “No” to the bailout deal it may crash out of the eurozone, but Prime Minister Tsipras and his Finance Minister Yanis Varoufakis have threatened to resign if Greeks vote “Yes”. They have accused European leaders of scaremongering over the consequences of a “No” vote.

Meanwhile rumours swirl round Greece of food and medicine shortages. Lena Antoniou, a 35-year-old mother of two, told AFP: “I’ve heard shops are running out of flour, sugar and salt. I’m really worried, how will we manage if we can’t get to our money and there’s no food to buy?”

Businesses have also reported having to ask workers to take unpaid leave, with some even having to pay workers in IOUs valid at local supermarkets.

“No-one accepts your credit cards. Most people are buying food now because they fear the worst,” said 51-year-old financial worker Andreas Koutras.

“Terrorism”

In a sign of increasing hyperbole today, Finance Minister Yanis Varoufakis accused Greece’s creditors of “terrorism” in their dealings with the country in the run-up to the referendum.

In an interview with Spain’s El Mundo paper, he said European leaders were trying to “instil fear” in the Greek people and accused them of wanting to “humiliate” Greece with a Yes vote.

“Why did they force us to close the banks? To instil fear in people. And spreading fear is called terrorism.”

Grexit – Germany

Meanwhile, German Finance Minister Wolfgang Schäuble admitted that Greece may leave the euro “temporarily” in an interview with Bild.

“Greece is a member of the eurozone. There’s no doubt about that. Whether with the euro or temporarily without it: only the Greeks can answer this question. And it is clear that we will not leave the people in the lurch.”

Although he says it would only be temporary, it may take a very long time for the Greek economy to recover to a level where it could be re-admitted to the currency union.

Grexit – Austria

Austria’s Finance Minister Hans Joerg Schelling also said that Europe would survive economically if Greece left the euro, but the consequences for Greece would be severe.

He told online newspaper Die Presse: “For Europe, this would be easy to manage economically. For Greece, it would indeed be considerably more dramatic.”

Schelling also said that fears of mass poverty in Greece were exaggerated, adding: “There’s a propaganda war going on here. It’s exaggerated to think that all the Greeks will have to live in the streets or won’t have access to medical care.”

Left Wing Economists Unite for ‘No’ Vote

Opinion among left wing economists is also hardening in favour of a ‘No’ vote with Paul Krugman, Thomas Piketty and Joseph Stiglitz saying it may be the least worst result.

Stiglitz said that a vote either way would carry huge risks, but “a no vote would at least open the possibility that Greece… might grasp its destiny in its own hands”.

Writing in the New York Times, Krugman also said that a ‘No’ vote may force Greece out of the euro “which would be hugely disruptive in the short run. But it will also offer Greece itself a chance for real recovery.”

Thomas Piketty also told French channel BMFTV that Greeks should vote “No” to the current bailout deal.

“For me, it’s clear: it’s a bad plan,” he said adding that although some Greeks fear a “big shock” if their country leaves the euro, the current debt burden is clearly unsustainable.

However, 246 Greek economists have disagreed. AFP reports that they wrote a letter saying: “we strongly believe that, at this crucial point, it is of paramount importance… to preserve our position in the eurozone and the EU”.

“We believe that the recessionary consequences of debt default and exit from the eurozone… will be much worse than the effects of a painful compromise with our EU partners and the IMF (International Monetary Fund),” they said.

“A disorderly break of our country from the core of Europe will have disastrous economic, social, political and geopolitical consequences.”