“The world’s biggest game of chicken comes to a climax this week, in the run-up to the Greek elections, on June 17th. Hurtling toward the cliff in one lane is the electorate, with the threat that it will vote for parties who refuse the austere terms of the bailout agreed on by the “troika” of the European Union, the European Central Bank, and the International Monetary Fund. Gunning alongside it is the troika, the other E.U. governments, President Obama, and just about every mainstream economist alive, all of them warning that a vote against the bailout would involve a Greek exit from the euro zone, and subsequent economic calamity.

“Greek polls show that voters hate the bailout terms, and also hate the idea of leaving the euro. But people speak out against the mnimonio, the memorandum attached to the bailout money, rather than the bailout per se. The memorandum contains the loathed austerity terms: pay cuts, job losses, tax hikes—all of which have helped to cause the Greek economy to shrink by sixteen per cent, the sharpest decline in any developed country since the Great Depression. Previously comfortable middle-class Greeks are rummaging through garbage cans for food—often after nightfall, when the neighbors can’t see. It’s easy to understand why they want the bailout without the mnimonio. The one thing in Greece’s favor is that it would be much, much cheaper for the E.U. governments to bail it out again than to pay for the consequences of an exit.

“The economic powers, especially Germany, the most powerful and richest country in the E.U., are keen to see that the Greek refuseniks don’t get their way. Christine Lagarde, the head of the International Monetary Fund, let some of her irritation show last month in an interview with the Guardian, in which she complained about “all these people in Greece who are trying to escape tax.” That was seen as a fair charge, even though Lagarde’s own salary of close to half a million dollars comes tax free. Tax collection from the better-off sectors of the Greek population—those who take the Leona Helmsley view that taxes are for “the little people”—remains weak, and tax revenues over all fell by a third last year. Even Alexis Tsipras, the young, charismatic leader of the far-left anti-bailout Syriza coalition, implicitly endorsed Lagarde’s words, in the course of denouncing her. “Greek workers pay their taxes, which are unbearable,” he said, adding, “For tax evaders, she should turn to Pasok and New Democracy”—the two pro-mnimonio parties that have run Greece for decades—“to explain to her why they haven’t touched the big money and have been chasing the simple worker for two years.” But that’s the point. An unsustainable burden is being loaded on those sectors of the population who were already paying.

“The sense of stuckness and imminent disaster radiating out from Greece has infected the entire euro zone, and anxieties from there are, in turn, stalling the global economy. Exit from the euro was supposed to be impossible; if that turns out not to be the case, what other impossibilities should we be contemplating? At the top of the list is a meltdown in Spain. The problem there is a refreshingly old-fashioned banking crisis, brought about by bad property loans. The government took over the country’s fourth-biggest bank, Bankia, on May 9th, only to have it call for a further bailout on May 25th, for a total cost of twenty-three and a half billion euros. The markets grew anxious about a full-bore crisis, and the government’s borrowing costs have, as a result, approached levels that would in effect shut Spain out of international markets. This crisis means that Spain’s banks are going to need a bailout. The fear is that, because Spain is the fourth-biggest economy in the euro zone—the thirteenth-biggest in the world—it is therefore in that nightmare version of the sweet spot where it is both too big to fail and too big to save.

“A peculiar feature of the euro situation is that the solutions to it are economically obvious. They are to federalize euro debt, and spread it across the euro zone; to introduce new euro-zone-wide institutions and fiscal rules to supervise the currency and the debt; and to adopt a medium-term strategy for growth, which would include structural reforms and increased competition. Unfortunately, the Germans hate the federalized debt, because they will end up paying most of it; the indebted countries hate the new rules, because of the loss of sovereignty that they entail; and the creditor countries in northern Europe hate the idea of a growth plan that will involve more deficit spending of the sort which, in their view, started all the trouble in the first place.

“What we have instead is a Continent-wide austerity policy, led by Germany’s Angela Merkel, that is manifestly making things worse, and has led to an anti-incumbent mood that has triggered changes of government in Ireland, Spain, France, Portugal, Italy, Finland, Slovakia, Slovenia, and the Netherlands. It has also produced the worst-ever result for Merkel’s Christian Democratic Union in North Rhine–Westphalia, Germany’s most populous state. If anything is likely to provoke a softening of the austerity-first line, it is this evidence that Merkel’s austerity measures are starting to prove unpopular at home—given that she faces a general election next year.

“The other country where the crisis has resulted in a change of government is, of course, Greece. Greeks are fond of pointing out that they invented democracy; they invented tragedy, too, and that is what their situation increasingly looks like, whoever wins the election. The problem is that in recent years they haven’t invented much of anything else. If Greece leaves the euro, the big hope for recovery would be to sell more and export more—but more of what? Greece has been described as the “richest country in the world that doesn’t make anything.” An exit from the euro, therefore, offers no magic solution. As for staying in, even if the Greeks get their amended mnimonio, the quid pro quo would surely include external control by foreign bankers and bureaucrats. That would compromise sovereignty so badly that it would be like having lost a war. Faced with these alternatives, perhaps it is no wonder that Greek voters and politicians are looking at the precipice in front of them, and starting to think that there’s only one way this ends. ♦”