LONDON -- Exhaustion had left its mark on the faces of the eurozone leaders by the July 13 end of their 17-hour negotiations. By the time they left European Union headquarters in Brussels, the sun had set, risen again and was high in the sky. And a monetary union implosion had been averted, for now.
Euro area leaders agreed on a plan for resuming Greece's financial rescue. The debt-laden country's departure from the euro had at some points looked extremely likely. By agreeing to provide further financial assistance, a "Grexit" was avoided. But that does not mean a lasting solution to the monetary union's woes has been found. The proverbial can has simply been kicked down the road.
"The most important currency has gone missing," said Angela Merkel, chancellor of Germany, the de facto leader of the euro area nations. "And that's trust." The negotiations on Greece had been mired in acrimony. Many euro area leaders have had their fill of Greece's chosen representatives. They believe Greek Prime Minister Alexis Tsipras' government is erratic and unpredictable.
The eurozone and International Monetary Fund antidote for Greece is austerity. As negotiations grew ever more critical in late June, Tsipras played a wild card: He called a referendum. Greek citizens voted on austerity and on July 5 delivered a resounding no. More than 60% of voters rejected creditor measures for solving Greece's problems, much to the dismay of the market.
While rejecting austerity, Greeks wanted to stay in the euro area. That put Tsipras in a straitjacket. He had little choice but to offer concessions and accept key elements of the austerity measures demanded by other European nations. Some countries were ready to accept a Grexit. In return for further assistance, Greece agreed to more reforms, including an increase in value-added tax and a curb on pension payments. "We fought as hard as we could, and now we have to focus on implementing reform at home," said a deflated Tsipras when negotiations were over.
Stability on the line
Tsipras on July 13 accepted measures that a little more than a week earlier he had empowered Greeks to reject at the ballot box. That could lead to instability. Syriza, the left-wing group that leads Greece's governing coalition, is already on wobbly ground. Dissent is growing within its ranks. Political gridlock and a snap election are possibilities. The resulting political turmoil would put adherence to creditor demands on the back burner, not for the first time.
Cracks in the eurozone are also growing beyond Greece's borders. Past failures to implement austerity measures have cost taxpayers in other nations. German Finance Minister Wolfgang Schaeuble, in particular, was vocal in his demand: austerity or out, at least for a time. He was backed by northern European countries such as Finland. But other European nations, such as France and Italy, were wary of such a contingency. "This isn't just about Greece, this is about Europe," said French President Francois Hollande.
No eurozone country has ever left the currency. Europe set up a safety net after the global financial crisis left several nations with serious debt problems. Still, if Greece gets in deeper trouble, contagion could reach other financially vulnerable southern European countries. Spain, Italy and Portugal all have sizable debts and have been attacked by speculators in the past.
If Greece fails to implement the reforms it has promised creditors, it could still be booted from the eurozone. "In case no agreement could be reached, Greece should be offered swift negotiations on a timeout from the euro area," the draft agreement reads.
"The willingness of the creditor institutions to condone yet another extend-and-pretend has been stretched to its limit," said Willem Buiter, global chief economist at Citigroup. "Grexit, therefore, is more likely than not for the next two to three years, in our view."
Paul Krugman, the Princeton University economist, called the demands put on Greece "madness," in his New York Times column. "The European project -- a project I have always praised and supported -- has just been dealt a terrible, perhaps fatal blow."
Problems now put aside for another day are likely to arise again in Greece. Any failure to follow through on austerity promises will likely be met with calls for a Grexit from Europe's fiscal conservatives. In the face of this risk, markets could convulse. Such high drama could repeat itself in Greece again and again.
Sisyphus, a king in Greek mythology, was punished for being deceitful. He was condemned to carry a rock to the top of a hill only to watch it roll back to the bottom in a never-ending cycle. The ancients knew a thing or two about tragedy.