Macroscope | Time for Greece and euro zone to go separate ways

There comes a time when the squabbling has to stop and opposing sides need to settle their differences. Greece and the European Union have been at loggerheads for far too long without resolution of the debt crisis. Both sides now need closure. The best option may be for Greece to leave the euro zone (Grexit).

Struggling to stay in the euro zone has taken a toll on Greece's economy. After suffering a 4½-year depression, the economy is slipping back into recession. A quarter of the adult workforce is out of work and youth unemployment stands at 50 per cent. There is no end in sight to the continuing pain of austerity. It is a high price to pay for staying in the euro zone and keeping the euro.

Time is running out and the odds of a Greek debt default loom large. So far, the country has managed to scrape the bottom of the barrel to meet its debt repayments, but the money is quickly running out. With pressing domestic commitments to keep paying public-sector wages and pensions, crunch time is likely to come soon.

Both sides are playing hard ball now. The chances of a debt swap or a significant debt write-down are off the table. The only option left for Greece is a cash-for-reforms deal to secure more creditor money. But the radical reforms being sought by the creditors as a condition for new bailout funds are proving too slow and politically painful to implement in time.

Meanwhile, international pressures continue to build. Germany's Bundesbank is complaining about Greece tapping the emergency liquidity assistance facility provided by the European Central Bank to keep the country afloat. It claims emergency lending breaks the taboo of the ECB financing governments. The funding taps are slowly and surely being turned off to intensify pressure on the Greek government.

There is a way out. In the absence of a last-ditch funding concession from the EU, Greece could throw in the towel and leave the euro zone. At a stroke, it could cast off the shackles that have been binding the economy for the past seven years. The left-leaning Syriza government could meet its election pledge to voters to ditch austerity and try to set course for faster recovery. It would be free to use the full panoply of policy levers denied inside the euro zone.