Greece Is Playing With Fire

The ruling Syriza party brought out the nuclear option, threatening to default on its IMF loans.


Alexis Tsipras

Despite repeated promises, Greece and its Eurozone lenders have still not come to an agreement about what steps the foundering Mediterranean nation will take to unlock continued financial assistance. Now, Greece has introduced into the conversation the possibility that it might default on some of its loans, a threat that would seem to dramatically increase the likelihood of Grexit.

To recap: Leaders from the rest of the currency union, led by Germany, are demanding that Greek Prime Minister Alexis Tsipras commit to a series of reforms to get the country back on sound financial footing. These would include some combination of privatizing national assets like ports, laying off (or keeping laid off) public employees, cutting (or keeping cuts to) government spending levels, and stepping up tax collection. Tsipras, who campaigned on rolling back just such austerity measures, imposed as part of the last bailout, has not yet managed to present the Eurozone with an "acceptable" list of reforms he's willing to take, so the European leaders are holding back the financing on which the Greece economy depends.

But time is an enormous factor here. About €450 million worth of International Monetary Fund (IMF) loans come due next week, and Greece doesn't have the cash on hand to service them and also pay for its government workers' wages and pensions. It needs further assistance.

In an attempt, presumably, to pressure the Eurozone to release the rest of its bailout funds, the Greek interior minister yesterday took the unusual step of suggesting the country might choose to default on its IMF loans rather than allow its public employees to go unpaid. Defaulting on payments to the IMF would eventually lead to a forced exit from the currency union—a "Grexit," as it's known—something all sides have been adament must be avoided.

This morning came the news that cooler heads prevailed, at least temporarily. Greece walked back its threat to intentionally default, saying it would make the IMF payment due April 9 after all.

But more loan deadlines are fast approaching, and Greece still doesn't have the money to pay for everything it wants. Unless Tsipras can come up with a reform package his European creditors deem acceptable, the country will again risk default. Last time Germany and the others dug in their heels, Tsipras backed down, promising not to unilaterally roll back any more austerity measures without their approval. He'll probably do the same this time around.

If he doesn't, Grexit awaits.