QUITO – The Greek crisis is a tragedy for the country and a danger for the world economy. Germany is demanding that Greece continue to service its debts in full, even though Greece is clearly broke and the International Monetary Fund has noted the need for debt relief. The collision of reality (Greece’s insolvency) with politics (Germany’s demands) was bound to create a disaster. And, indeed, it has: the shocking collapse this week of the Greek banking system.
Yet there still is a way out of this mess. Greece’s debt should be cut sharply, and the country should remain within the eurozone.
In negotiations with its creditors this spring, Greece recognized this, insisting that its debt be reduced. Germany refused. Though the United States and the IMF privately sided with Greece, Germany prevailed, as creditors usually do.
Yet creditors sometimes prevail to their own detriment; by pushing the debtor to the breaking point, they end up bringing about a complete default. Germany’s mistake this past week was to push the Greek economy – already in conditions rivaling those of the Great Depression – into a complete financial collapse.