It Is Up to Merkel to Avoid a Grexit - Newsweek

BY JUDY DEMPSEY 

By calling a referendum for July 5 on whether Greece should ACCEPT the latest conditions of its international creditors in return for receiving new LOANS, Greek Prime Minister Alexis Tsipras has called into question Europe’s future. Whether fair or not, Merkel now has the most unenviable role in deciding Europe’s, and Greece’s, fate. Because Merkel has so many times linked the future of the eurozone (and Greece’s membership in it) to the future of Europe, Tsipras must be BANKING on the fact that she will not allow Greece to default.

The referendum was announced following an acrimonious EU summit from June 25 to 26. It is no exaggeration to say that the EU is facing its worst crisis since the union’s predecessor was FOUNDED in 1957.

Since then, Europe has faced many crises. The bloody civil war in Yugoslavia during the 1990s exposed the EU’s inability to think and act strategically. Despite that long conflict, the EU has made little progress in developing a convincing security, defense and foreign policy.

Russia’s annexation of Crimea in March 2014 and its invasion of eastern Ukraine jolted the EU, but not enough for it to forge ahead with a robust security and defense policy. Instead, the Europeans—surprise, surprise!—have left it up to NATO to fill the security vacuum in the alliance’s Eastern MEMBER states.

As for this year’s terrorist attacks in France and other European countries perpetrated by the self-styled Islamic State (ISIS) and its supporters, those acts should have convinced all EU member states of the need to cooperate much more closely on intelligence, security and integration ISSUES. Security officials say cooperation has improved but has fallen too far short of what is needed to meet the threats facing Europe.

But it is the Greek crisis, a homebuilt tragedy, that has the potential to make or break Europe. This crisis is about the legitimacy and future of a European CURRENCY. Above all, it is about Europe’s ability to move toward more economic and political integration. Without that, Europe’s ambitions to become a truly global player will come to naught.

Even though Greece has a small economy, the crisis there has exposed the vulnerability of the eurozone and the inability of the Greek political elites to tackle reform head-on.

In the long term, the negotiations between Greece and its international CREDITORS, which consist of the European Central Bank, the European Commission and the International Monetary Fund, were aimed at making Greece competitive. Undoubtedly, the impact of the austerity measures demanded in return for previous bailout packages has been truly miserable for the elderly and the middle classes—but not for Greece’s oligarchs and the very well-off.

The EU isn’t blameless either. Even though leaders of other eurozone member states knew that the Greek economy was far from ready to give up the drachma in 2001, they turned a blind eye and let Athens adopt the EURO.

All this will no doubt be conveniently forgotten as, over the coming hours and days, the crisis shifts to Angela Merkel, the German chancellor. It is she and her FINANCE Minister Wolfgang Schäuble who have insisted that Greece implement a reform PROGRAM to transform the country’s dysfunctional economy into a transparent and competitive one.

Whether fair or not, Merkel now has the most unenviable role in deciding Europe’s, and Greece’s, fate. Because Merkel has so many times linked the future of the eurozone (and Greece’s membership in it) to the future of Europe, Tsipras must be BANKING on the fact that she will not allow Greece to default.

This perception of Merkel says much about her—and, as a concomitant, about Germany’s role in Europe. It is Merkel who has discovered foreign policy since the START of her third term in office in 2013. It is Merkel who has become the major player in Europe.

It is Merkel who has had to deal with the Ukraine crisis and oversee the so-called Minsk II accord to end the fighting in eastern Ukraine—a deal that she negotiated in February 2015 between Ukraine and Russia. It is Merkel who has kept all other 27 EU members steady over prolonging the union’s sanctions against Russia—no easy task given the misgivings of Greece, Slovakia, Hungary, the Czech Republic and Italy.

And it is Merkel who has had to deal with the Greek crisis. She has spoken to and met Tsipras many times. It was hoped, even assumed, that Merkel had established a degree of trust with this young left-wing leader. As the head of his far-left Syriza party, Tsipras was catapulted into power in JANUARY 2015 on a promise that he would end Greek austerity measures. Six months later, Athens has moved backward, not forward.

Not only that. Greece has become a security risk to the EU because of the damage the country will do the EURO if it defaults. A Greek default or a full-fledged exit from the eurozone would also be a risk to the country’s democracy because populists and ultranationalists could gain ascendancy.

And a default would be a threat to the region because Greece’s stability would no longer be a given. That could jeopardize any future talks on the division of Cyprus, which now show a glimmer of hope since the June 7 parliamentary election in Turkey and the election in April of the moderate Turkish Cypriot leader Mustafa Akıncı.

No wonder U.S. President Barack Obama telephoned Merkel on June 28 to discuss Greece. No wonder Jack Lew, the U.S. treasury secretary, phoned Tsipras. The Greek crisis has become a major security issue for Europe and for THE UNITED States. It is up to Merkel to find a way out.

Judy Dempsey is a nonresident senior associate at Carnegie Europe and editor in chief of Strategic Europe. This article first appeared on the Carnegie Europe WEBSITE.