Tsipras Merkel Zhang Fan/ZumaPress

Why Greece Declined a Euro Holiday

The rationale for the euro, as many critics have noted, was always more political than economic. But Greece's sudden about-face on austerity suggests that, contrary to popular belief, countries’ political attachment to Europe via the euro remains very strong.

BRUSSELS – For the entire first half of this year, since the far-left, anti-austerity Syriza party came to power in January, the Greek saga virtually monopolized the attention of European policymakers. Even as their country’s economy crashed, Greece’s new government remained adamant in demanding debt relief without austerity – that is, until mid-July, when they suddenly agreed to the creditors’ terms. Indeed, as of July 13, Greece’s staunchly anti-austerity government has been obliged to impose even tougher austerity and pursue painful structural reforms, under its creditors’ close supervision.

Why did the Greek government concede to terms that not only controverted its own promises, but also closely resembled those that voters had overwhelmingly rejected in a popular referendum barely a week earlier?

Many believe that Greek Prime Minister Alexis Tsipras was responding to an ultimatum from his European partners: Accept our demands or leave the euro. The question is why a Greek exit from the euro (“Grexit”) amounted to such a potent threat.

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