Greek voters delivered conflicting messages Sunday to the rest of Europe about the country's debt crisis. With 61% voting against the terms creditors had offered to extend Greece's bailout, Greeks said loudly and clearly that they're tired of the austerity imposed by foreign lenders. But the country's leftist government maintained in the run-up to the vote that a "no" on the bailout was not a "yes" for abandoning the euro. In fact, the vote pushed Greece much closer to exiting the Eurozone, which would be a terrible outcome for Greece, Europe and those who hold Greek debt.
The seeds of Greece's defiance were planted last year, when voters threw out the ruling coalition — again — in favor of a radical left party that had campaigned against the methods the government had used to close its budget deficit. At the time, according to the International Monetary Fund, Greece had been heading in the right direction: Its economy was growing again, albeit slowly, and its punishingly high unemployment rate was slowly coming down. Had it stayed the course, it would have needed no additional help from its creditors, the IMF declared in a recent report. But staying the course wasn't politically feasible in Greece after years of a punishing combination of recession and spending cuts had left more than a quarter of adults without jobs.
Now, European leaders have to be careful not to give other struggling countries an incentive to follow Greece's lead into default, potentially costing creditors more than if Greece exited the euro. That's why the onus is on Greece, not Germany or France, to come up with a plan to restructure its $271-billion debt that can appeal to both sides' needs. Such a plan would have to do more to promote economic growth while still paying as much as possible of the debt Greece ran up through its profligacy. Yet if that were an easy path to chart, the two sides would have done it already.
Some of Greece's creditors may be tempted to dig in their heels to avoid encouraging the likes of Spain and Portugal from holding their own referendums. That would be self-defeating. As the IMF noted in late June, Greece simply isn't capable of avoiding a much bigger default without a larger bailout and more debt forgiveness. Without a modified deal, Greece will have no choice but to switch back to its former currency, the drachma, and start printing money. The citizenry might be hit hardest by the inflation that almost certainly would drain the drachma's value, but there would be no winners in that scenario.
Leaders of the 19 Eurozone nations have scheduled an emergency summit Tuesday to discuss their next steps, with Greek banks rapidly running out of euros and the government almost certain to default on the more than $7.5 billion in debt payments due by July 20. The Greek government, which canned its provocative finance minister Monday, has been saying for a while that it's closing in on a plan that both sides can accept. Now's the time to deliver one.