Beyond the Greek Impasse

By George Friedman

The Greek situation — having perhaps outlived the term "crisis," now that it has taken so long to unfold — appears to have finally reached its terminal point. This is, of course, an illusion: It has been at its terminal point for a long time.
 
The terminal point is the juncture where neither the Greeks nor the Germans can make any more concessions. In Greece itself, the terminal point is long past. Unemployment is at 26 percent, and more than 50 percent of youths under 25 are unemployed. Slashed wages, particularly in the state sector, affecting professions including physicians and engineers, have led to massive underemployment. Meanwhile, most new economic activity is occurring in the untaxable illegal markets. The Greeks owe money to EU institutions and the International Monetary Fund, all of which acquired bad Greek debts from banks that initially lent funds to Greece in order to stabilize its banking sector. No one ever really thought the Greeks could pay back these loans.

The European creditors — specifically, the Germans, who have really been the ones controlling European negotiations with the Greeks — reached their own terminal point more recently. The Germans are powerful but fragile. They export about a quarter of their gross domestic product to the European free trade zone, and anything that threatens this trade threatens Germany's economy and social stability. Their goal has been to keep intact not only the euro, but also the free trade zone and Brussels' power over the European economy.

Germany has so far avoided an extreme crisis point by coming to an endless series of agreements with Greece that the Greeks couldn't keep and that no one expected them to keep, but which allowed Berlin to...

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