Solution to Greek debt crisis lies in compromise

PUBLISHED : Wednesday, 01 July, 2015, 1:23am
UPDATED : Wednesday, 01 July, 2015, 1:23am

By now, barring an unexpected development, debt-stricken, austerity-weary Greece has gone into default by failing to make a €1.6 billion (HK$13.8 billion) payment to the International Monetary Fund due by midnight Athens time. With Prime Minister Alexis Tsipras having broken off talks with the country's creditors, exit from the single European currency union looms closer, with all its near-term pain and long-term unknowns - for Europe as well as Greece. But more important to the final outcome now will be the result of a snap referendum that anti-austerity Tsipras has called for Sunday, at which the terms of further bailouts for Greece will be put before voters.

Greeks get the chance to say whether they are prepared to endure the continuing sacrifice of staying in the euro. They deserve it, because the issue is now bigger than contentious questions that collapsed the talks like pension cuts, or recriminations between German and Greek commentators over whether Greek profligacy or harsh austerity measures did more damage to the economy. The question for ordinary Greeks buckling under austerity with no relief in sight is whether they are prepared to take the leap into the unknown of abandoning the euro. That is equally a question for other euro-zone leaders and international financial institutions. A Greek withdrawal would not only cripple its credit rating and risk the stability of its banks, but it would do nothing for the credibility of the single currency. German leader Angela Merkel has warned: "If the euro fails, Europe fails."

European leaders have warned that Sunday's vote will be a referendum on euro membership. To secure a "Yes" vote they have to overcome a sense of injustice that much bailout money has not been used to rebuild Greece's economy but to repay interest and principal on past loans from big banks in creditor countries while Greeks suffer austerity. Greeks are more likely to vote to stay in the euro zone if creditors propose meaningful debt restructuring, including substantial write-offs, that gives some incentive to undertake the reforms lenders demand.