A growing number of voices are saying that a Greece unwilling to pursue reforms has no future in the euro zone. They argue that by exiting the euro, the Greeks will take responsibility for their economic and monetary policies and that will make the euro zone more stable in the medium term. Meanwhile, other nations would be forced to exercise more discipline to avoid Greece’s fate.
These arguments often overlook the costs that would arise from a Grexit, not only for the Greeks but also for the euro zone. In view of these risks, the political price for compromise between Athens and its creditors would be manageable.
Greece has been wrestling with international creditors over debt for four months. So far, the government has shown little willingness to accept creditor demands for reforms in the areas of value added tax, pensions and the labor market. Additionally, Athens announced more spending that will add more red ink to the national budget. Under those circumstances, it’s unlikely the €7.2 billion ($8 billion) in additional bailout funds will be released.