By Marcus Walker
Europe’s ultimatum to Greece, demanding full capitulation as the price of any new bailout, marks the failure of a rebellion by a small, debt-ridden country against its lenders’ austerity policies, after Germany flexed its muscles and offered Athens a choice between obeisance or destruction.
Sunday’s statement on Greece by eurozone finance ministers will go down as one of the most brutal diplomatic démarches in the history of the European Union, a bloc built to foster peace and harmony that is now publicly threatening one of its own with ruination unless it surrenders.
The weekend’s power play also highlights the cracks among Greece’s creditors—especially Germany and the International Monetary Fund—as the cost of keeping Greece in the euro spirals out of control. The IMF has urged Europe to give Greece some debt relief, something Berlin has opposed. Part of the reason for Germany’s hard line now is that maximally tough austerity in Greece could reduce IMF pressure to write off Greek loans.
The other 18 euro members were late Sunday pushing Greece to implement all of the austerity measures and broader economic overhauls its voters have twice rejected—in elections in January and in a referendum on July 5—not in return for new rescue loans, but as a precondition for even talking about them.
The Greek government of left-wing Prime Minister Alexis Tsipras, which has spent all year trying to challenge Europe’s bailout policies, has ended up a near-powerless pariah in Europe—even though Mr. Tsipras is politically dominant inside Greece. Its only remaining option for disobedience—to default and leave the euro—would satisfy rather than horrify many of its European critics, led by German Finance Minister Wolfgang Schäuble.
Greece hasn’t complied with creditors’ demands yet. But its only alternative appears to be the gamble of a euro exit, which most Greeks fear would bring worse economic devastation.
In the end, the telling factor in the standoff may be that Greeks fear their country’s exit from the euro more than Germany does. That gives Berlin the stronger hand to impose its austerity-and-reforms prescription. (my emphasis)
READ all of Marcus Walker’s comments from the Wall Street Journal here .