Editorial: Greek crisis a real millstone for Europe

Protesters take part in an anti-austerity demonstration in Thessaloniki, Greece. Photo / AP

With its banks closed, automated cash withdrawals restricted and a big debt payment due tonight, Greece surely cannot continue to defy its creditors. The run on the banks since Prime Minister Alexis Tsipras announced bailout conditions would be put to a referendum leaves little doubt which way the majority will vote. Greeks are likely to say no.

Six months ago they elected Mr Tsipras' party to reject further "austerity" attached to bailouts by European institutions in the belief they could keep the euro. Even now, they are gambling that in the end, eurozone leaders will act to keep them in the currency union. They may be right. For all the tough talk from eurozone finance ministers during their negotiations with Mr Tsipras over the past few months, they changed their tune as soon as he walked away at the weekend. They promptly withdrew the bailout conditions that will be put to the referendum on Sunday and told Mr Tsipras their door is still open.

"Greece remains a member of the eurozone and Greece remains part of Europe," said Germany's Finance Minister, Wolfgang Schaeuble. Greece's "destiny" was in the euro, said his French counterpart, Michel Sapin. Sentiments such as those virtually assure Greeks they can have their cake and eat it too. They can vote themselves generous pensions, evade taxes, borrow the savings of other countries and become outraged that Europe's bankers will not extend their credit unless they change their ways.

The world outside Europe can only wonder how Greeks get away with it. The explanation can be found in Europe's fear of taking a backward step in its drive for an ever closer union. The creation of a common currency was the latest and bravest step by those countries committed to a united Europe. Critics would say it was their most foolish step. A currency needs to be supported by a sovereign government with the power to ensure its value is not undermined by fiscal deficits and debt or inflationary monetary and credit creation.

Those who argued for the euro knew this very well but went ahead regardless. They expected a common currency to create the conditions in which its constituent countries would have to co-ordinate their monetary and fiscal policies and put more power in the hand of united European institutions. They might even have expected the sort of tensions that arose with Greece and some other euro users in the recession of 2009-10, and they might consider that bailouts and the associated conditions have brought Europe a little closer to common government.

But Greece is proving a harder nut for them to crack. While it has accepted some austerity it has not done enough to curb tax evasion, limit early retirement pensions and live within its means. If it had its own currency the market would give it a devaluation, curing its domestic excesses and boosting its exports and tourism. Greece would recover without the euro and the euro would be stronger without Greece. It will be a relief for all concerned when it happens.