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Within weeks Athens will either reach an agreement with its creditors, or default on billions of its debts. Given Greek banks’ dependence on funding from the European Central Bank, default could then push Greece out of the eurozone. After that, nobody can be sure what would happen. For Greece’s creditors, a larger default would follow: euro-denominated debts would be repaid in drachma, or not at all. The destruction of Greece’s financial system would rip the life out of its economy and do unknowable damage to its political system. Such chaos would also deal a wounding blow to the European ideal that has spread stability and prosperity across the continent over the past decades.

No European leader worthy of the name should want such an outcome, let alone will its occurrence. In light of this the Financial Times has consistently argued for every possible effort to be made to avoid “Grexit”.

But there is an outcome worse than Grexit, and that is a botched rescue that merely postpones it, wasting Europe’s scarce political and financial capital. Previous rescue attempts provide a lamentable example. The first, in 2010, allowed no space for debt forgiveness. Instead, over €200bn was invested in making Greece’s creditors whole. Athens avoided default but its economy gained no relief. The austerity insisted upon by its creditors drained demand from an economy already in freefall.

Two years later, after a depression deeper than that endured by any other state in recent times, Greece’s official creditors were panicked into another imperfect bailout. This time there was — some — debt relief; most privately held debt was partly written down and its repayment dates pushed back. But Greece was again left in a position of fragility, its economy doomed to another year of recession and forced to impose cuts destined to shatter whatever brittle consensus lay behind the programme. The IMF wrote that Greece had to carry out “an unprecedented amount of fiscal and current account adjustment”. Athens was left facing hefty repayments this year, for which it lacked the financial wherewithal — in particular, billions owed to the ECB.

Past bailouts sowed the poisonous seed of further bailouts to come. Were Greece now led by a government meekly submissive to its creditors, it might weather yet another negotiation. But in January, a series of political mishaps swept the previous administration from power and ushered in Syriza. The radical left party, led by Alexis Tsipras, set about unravelling much of what had been agreed — postponing or cancelling reforms, and provoking their European partners by insisting on the need for an entirely new settlement. Six months of fractious negotiation later, Greece’s creditors have put together a new offer: Syriza must either accept, or face the consequences.

Without friends or finance, the Greek prime minister is left with just three possible cards to play: one technical, a second principled and the last utterly dishonourable. In technical terms, Syriza’s condemnation of the current arrangement deserves a hearing. Their north European antagonists are wrong to resist debt relief; such stubbornness renders more likely a dismal repeat of this stand-off. Greece’s finance minister Yanis Varoufakis is right to insist that any solution prioritises growth, a factor inexplicably absent from previous negotiations.

Mr Tsipras’s principled cause for resistance is the backing of the Greek people, who elected him to office sharing his disgust at the previous settlement. But however principled, this is a card of questionable value: Athens may have invented democracy but this does not mean a Greek vote should trump a German or Nordic one. Moreover, the electorate also chose Mr Tsipras after he promised to keep Greece within the euro, not gamble their membership for political gain.

The dishonourable card that Syriza holds is the horror with which sensible Europeans, such as Germany’s chancellor, Angela Merkel, contemplate Grexit. Mr Tsipras’s strategy all along may have been premised upon his antagonists acting responsibly so he does not have to. There is a mere €2bn gap between his position and that of hardliners such as Wolfgang Schäuble, Germany’s finance minister: for such an amount, he might reason that she would never allow such harm to be caused to Europe.

If so, he may be making a bad miscalculation. For all the blame that the creditor nations deserve for the mess, their latest offer, while far from perfect, is acceptable. It could be improved with some debt relief, as the IMF urges, and which would give Mr Tsipras a scalp to parade before his own sceptics. It would help if pension and VAT reforms that the creditors demand were shunted into the future. If accepted, however, such a deal may allow this to be the last time Greece has to bargain for its financial future.

The creditors’ reasons for intransigence are weightier. It is not just for €2bn that they hold out, but a sign that the government in Greece will not endlessly backslide on reforms. Under the shelter of the euro, and fed by streams of EU structural aid, Greece’s clientelism grew worse. Experience has shown that even centrist governments need external prods to carry through reforms. Syriza, for all its professed outrage at the oligarchy dominating its economy, has shown little resolve for tackling it. Its resistance to reform betrays a contempt for market forces. If unwilling to concede on VAT and pension reforms, Mr Tsipras must offer something better: ideally, to break the cartels that hold back the Greek economy.

Were either side to back down, Grexit would be avoided, at least for the moment. But the creditors’ offer has the best chance of preventing a repeat of this saga. Mr Tsipras should accept it.

Copyright The Financial Times Limited 2017. All rights reserved.
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