Forget about preventing default in Greece, control it, says Europe

Still, a sovereign default of a eurozone member would be an unprecedented event – with a potential domino effect for larger economies also on the euro. On the heels of a Greek default, investors would be more wary of investing in other troubled economies like Spain, Portugal, and Italy.

“There have been lots of sovereign defaults in the past,” says Mr. May. “Some, like Argentina in the 1990s, dragged on for years and had a huge social impact. Other cases, like Uruguay in 2003, managed to return to the markets very quickly. It’s not unusual for a government to restructure its debts. It is unusual though that this is happening in a developed economy that is part of a currency union.”

Because Greece does not control its own currency, it has fewer options for handling the aftermath of a default.

'Blackmailing' Greece

According to Reuters, the Netherlands and Finland share Mr. Schäuble’s concerns and have proposed to postpone any new bailout payments until after general elections have taken place in Greece. 

“The political landscape in Greece is going to be shaken by an earthquake,” says Janis A. Emmanouilidis, senior policy analyst at the Brussels-based European Policy Centre. “The support for some of the established parties like PASOK is evaporating. I think, Mr. Schäuble, who certainly would prefer the technocratic government of [current Prime Minister] Lucas Papademos to stay in power as long as possible, has done himself a disservice and provoked the Greek people.” 

The Greeks took offense at the remarks of the German finance minister. “Who is Mr. Schäuble to insult Greece?” said an indignant Greek President Karolos Papoulias. “Who are the Dutch, who are the Finns?” Finance Minister Evangelos Venizelos complained about dwindling help from the currency union. “There are some in the eurozone who don’t want us any longer,” he said.

But the European Parliament in Strasbourg spoke up in support of Greece. “Greece is being blackmailed by the troika [of EU, IMF and European Central Bank],” said Austrian Hannes Swoboda, leader of the European Social Democrats, in the plenary session on Feb. 15.

Without a large-scale stimulus package, Greece is going to collapse, Mr. Swoboda argued. Daniel Cohn-Bendit, leader of the Greens in the European Parliament, even called the troika a “neo-liberal Taliban” that was demanding cuts in pensions instead of reducing the defense budget. 

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