What to expect if Sunday’s negotiations result in Greece leaving the euro

This Sunday, European Union members will gather for an emergency summit to determine Greece’s fate in the European system. Greece’s creditors have demanded that the government of Greek Prime Minister Alex Tsipras submit a new proposal for resolving the debt crisis by this Thursday.

As the high-stakes negotiations between Greece and Europe loom and Greece risks running out of cash, Brookings experts are looking ahead to determine what’s at stake if Sunday’s historic negotiations result in a Grexit.

What a Grexit would mean for global tensions and relations

• Greece could develop an even closer relationship with Russia. According to Pavel K. Baev, desperate Greeks see Russian assistance as “the best hope for escaping the clutches of their European creditors.” He specifically cites an unlikely-to-materialize Russian promise for a new gas pipeline to channel Russian gas to Europe through Greece. “Putin and Tsipras keep pretending that they could somehow join efforts in resisting EU pressure…to the great detriment of the deeply troubled Greek and Russian peoples.”

• Tensions will grow in Southeastern Europe. “No one understands this better than Angela Merkel,” write David Gordon and Thomas Wright. “She [Merkel] remains acutely aware of Greece’s long flirtation with Russia and of Russian President Valdimir Putin’s continuing efforts to sow discord in the EU.”

What a Grexit would mean for the global economy

• A Grexit could impact Europe’s and America’s economies. Douglas Elliott states that the Greece crisis could cause a ripple effect that would impact Europe’s and America’s economies, with “interest rates rising for the weaker European nations and stock markets falling across the world.”

• A Grexit could deepen the crisis, spread financial contagion, and put democracy under strain. David Gordon and Thomas Wright warn of the outcome when governments don’t help “irresponsible banks and financial institutions at the heart of the crisis.” They elaborate: “If the world has learned one thing from financial crises over the past two decades it is that governments must stop thinking in terms of moral right and wrongs. Sometimes, to save the system, they must help the irresponsible banks and financial institutions at the heart of the crisis.” Gordon and Wright specifically highlight the vulnerability of Bulgaria and Serbia if Greek banks fail.

What a Grexit would mean for the future of the European Union

• A Grexit would show that a monetary union is reversible.  David Gordon and Thomas Wright discuss the implications for the European Union: Greece could show that a monetary union is reversible, which would have dangerous consequences in future crises. 

• Creation of a ripple effect across Europe. Douglas Elliott argues that if Greece is allowed to say no to required economic policies or to simply refuse to pay back their debts, it could create a ripple effect across Europe and would embolden Spain, Portugal, and possibly France to do the same thing.