Europe

Greek debt crisis: Battle of nerves as rhetoric spirals

Greek protester in Athens (17 June) Image copyright Getty Images
Image caption Trust on both sides is wearing thin and the language has become more heated

Diplomacy, someone once said, is the art of thinking twice and then saying nothing.

That dull thud you can hear in high offices of state across Europe at the moment is the sound of the rule book crashing to the ground after being thrown out of the window.

No-one appears to be thinking twice, and no-one is saying nothing. The barbs are flying thick and fast as Greece seems to be stumbling towards default.

The Greeks accuse the International Monetary Fund of criminal responsibility for their current plight; they say the rest of Europe is trying deliberately to humiliate them.

The Europeans accuse the Greek government of lying to its people, of amateurism and double-dealing.

It is mendacious, they say, and playing with fire.

Image copyright Reuters
Image caption Jean-Claude Juncker seems to have lost his sense of humour

Officials in Brussels mutter darkly about a betrayal of trust.

The diplomatic style of European Commission President Jean-Claude Juncker usually involves a slap on the back and a kiss on the cheek.

But even he seems to have lost his sense of humour when it comes to dealing with Greeks, who are most emphatically not bearing gifts.

How did it come to this?

Five years of austerity and crisis in Greece have produced the deepest recession ever seen in a modern industrialised economy.

And the depth of that recession - more than a quarter of the economy wiped out - produced Syriza, the coalition of the radical left.

It came to power at the beginning of this year determined to change an economic relationship it has described as servitude: reliant on loans to keep the economy afloat so that it could pay back the debts owed to the same people who were now lending it more money.


Greece - deal or no deal?

Image copyright Getty Images
  • Option 1: No deal: Greece defaults on IMF and ECB repayments; ECB pulls plug on emergency bank assistance leading to run on Greek banks, capital controls and potential "Grexit"
  • Option 2: Greece agrees reform deal with creditors at last minute and avoids default, staying in euro
  • Option 3: No deal reached but both sides paper over cracks and Greece stays in euro for now

Rhetoric ramped up as negotiations struggle

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The options for Greece


There was, I think, a working assumption in official corridors in Brussels that there would be some sound and fury, a few howls of protest, but eventually the Greeks would play ball.

Because they would have no other choice.

Toughest battles still to come?

That meant they would have to do what previous governments had done - push through more reforms of the public sector, cut salaries and pensions, and raise more money through taxation.

But five months of tortuous negotiations later, and Greek Prime Minister Alexis Tsipras says the toughest battles are just about to begin.

So far he hasn't blinked. We can't take any more, he says, and the Europeans have to look seriously at restructuring our debts.

The last five months, it seems, have just been the warm-up.

The trouble is, time is fast running out.

Image copyright EPA
Image caption The Greek government is running out of cash

If all the predictions made in the past few weeks that Greece was running out of money had come true, the country would have gone bankrupt several times already.

But there is a limit. And officials in Athens have emptied pockets and rummaged down the back of the national sofa, looking for every last piece of spare change.

There's not a lot left.

So what would happen if Greece did finally empty the coffers, and it was forced to default?

The honest answer is no-one can say for sure. But European politicians have been lining up to warn of looming catastrophe - capital controls and a collapse of the banking system, a state of emergency and possible exit from the euro.

Echoes of Waterloo

In the short term, Greece's economic misery would almost certainly get worse.

But Greek citizens are not the only ones with plenty still to lose. Because countries, governments and in the end taxpayers in the eurozone, having bailed out the banks, now own the vast majority of Greek debt.

And if the radical leftists who hold power in Athens did walk away shouting a plague on all your European houses, the rest of the eurozone would all be left with billions of euros, and in some cases tens of billions, in unpaid debts.

So however hard this is proving to be, all the main players still have an interest in compromise.

Can they find one?

Ceremonies are taking place on Thursday a few miles away from Brussels, in the rolling Belgian countryside, commemorating the 200th anniversary of the Battle of Waterloo.

The Duke of Wellington described his victory over Napoleon - a turning point in European history - as the "nearest-run thing you ever saw".

Today's European battles are thankfully fought on different terrain. But it would be wise to prepare for another very close shave.

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