In many ways, Tsipras’ administration is caught in a bind of its own making. He swept to power after elections in January on the strength of campaign promises that many critics warned were irreconcilable.
“They’ve developed a narrative of ‘We can have our cake and eat it. We can be in the Eurozone and end austerity,’ ” said Kevin Featherstone, an expert on Greece at the London School of Economics.
They put power ahead of their country. They knew they couldn’t deliver.
They also know that expulsion of Greece from the Eurozone would call into question the whole idea of the EU. The euro is intended to serve as perhaps the most potent symbol of European amity and unity after a century of war and division; indeed, nations wishing to join the EU must commit to adopting the currency. Eurozone membership is supposed to be irreversible.
A Greek exit from the euro would explode that idea, and could start unravelling the project of greater European integration.
And investors would have grounds to fear that other, larger countries could also abandon the euro in tough times. Trust in the common currency could evaporate.
The lesson here is monetary policy and fiscal policy have to work together. You can have common currency, if you have a common fiscal policy. But you can not have a common monetary policy, if countries such as Greece just continually spend more than they earn.