On life-support from the EU and the International Monetary Fund (IMF), Greece is desperate to unlock the last 7.2 billion ($11.83 billion) of an international bailout so it can meet a deadline of June 30 for repaying 1.6 billion in debt. Without it, penniless and branded a defaulter, Greece would face "Grexit". It could be expelled from the euro, forced to print its old currency and even be kicked out of the EU.
GREECE BAILOUT: A data analysis of the Greek economy, its bailout and the eurozone economy.
The bailiffs have told it to push ahead with far-reaching reforms if it wants the money. Demands include an end to early retirement, which is pervasive in Greece, and an overhaul of its decrepit tax system. Alexis Tsipras' Government has refused to budge, pointing to years of suffering by the Greek public under EU- and IMF-imposed austerity. It insists on concessions on the debt itself. "It may come down to a head-to-head between Mr Tsipras and Angela Merkel, Germany's Chancellor," the business weekly the Economist predicts. "A deal is still possible, but the sides have come to loathe each other. If this were a marriage, the lawyers would be circling."
If there is no agreement, the first domino in a chain of collapse would be Greece's banks. Worried depositors last week pulled 4.6 billion from the Greek banking system, fearing the Government will impose controls to keep capital in the country or replace the euro with the drachma, devaluing savings at a stroke. Greek banks have lost a third of their share value since the Syriza Government came to power and are being kept afloat only thanks to short-term guarantees of liquidity by the European Central Bank.
Dislike and suspicion run deep on both sides. The poisonous atmosphere not only makes a deal more difficult to achieve. It also complicates the task of selling any accord to the financial markets, to the stakeholders in the IMF and to sceptical MPs in Greece and Germany.
The temptation to show Greece the door may be high, but so is the risk, which explains the brinkmanship.
Adhesion to the EU's single currency is supposed to be irrevocable. If Greece leaves and makes a successful relaunch, by walking away from 317 billion in debt and reviving its economy with a cheap currency, that would set a precedent for other "Club Med" countries with sky-high debts. Greece's debts are equivalent to 188 per cent of its gross domestic product; Italy's proportion is 147 per cent of GDP and Portugal's 132 per cent.
If "Grexit" proves disastrous for Greece, that would scare lax countries into compliance with EU macro-economic rules, which are supposed to ensure the euro's solidity but have been widely flouted, especially by France.
But Greece's economy has shrunk by a fifth since the start of the crisis. The danger is that further contraction would leave the country permanently wrecked, haemhorraging people and money, and prey to the far-right coups that marred its post-World War II history. The instability on the southern Mediterranean that so worries the EU would thus spread to its northern rim, and to within the 28-nation Union itself.
