America should continue to strongly encourage Greece and its European partners to reach a fair deal for additional funds to support Greece while it commits to undertake further reforms to repair its troubled economy.
Despite the bluster, the two sides can reach agreement, and their proposals are not very far apart.
It is politics, on both sides, that is making it hard to reach a sensible compromise. It would be a tragedy if Greece fell out of the currency union when a deal was within reach.
Some argue that it would be better for Greece to say “no” and to take off on its own. The one thing we know for sure is that this would create further massive hardship in Greece, forcing a steep recession initially as businesses and consumers pulled back sharply in the face of huge uncertainties and risks.
This might theoretically make sense for Greece in the long run if it enabled it to pursue much better policies unyoked from the common interest rates and exchange rate of the currency union. In reality, any government would make mistakes in the turbulent environment after the breakup. The inexperienced and highly ideological Syriza-led government in power today is likely to make even bigger mistakes.
Europe and America would be harmed by the ripple effects of Greece’s economic catastrophe, with interest rates rising for the weaker European nations and stock markets falling across the world, as they did this week. This would not be the end of the world, but why would we want to endure it when a sensible compromise would avoid these problems?
Further, a failing state on the southeast edge of Europe, facing the turbulent Middle East and with close cultural ties to Russia, is no recipe for longer-term stability, especially when that state is run by a party that styles itself honestly as the “Coalition of the Radical Left.”
Europe should sweeten the deal a little, for its own sake and because the excessive austerity it imposed earlier was partially responsible for much Greek suffering. Greece should then accept the new offer, because it has more to lose than anyone if it goes it alone.