A 'Grexit' is ever likelier - but it would not benefit Athens

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The clock on Greece’s membership of the eurozone appears to be fast running down. The country’s first showdown with its eurozone creditors on Wednesday did not go well. The Greek Finance Minister, Yanis Varoufakis, called the meeting “constructive”. But the plain fact is there was so little common ground between the two sides they could not even agree on the subject of future discussions.

This failure heaps still more pressure on to next Monday’s scheduled meeting of finance ministers. The head of the eurogroup of ministers, Jeroen Dijsselbloem, has said Greece needs to request an extension of its bailout by the beginning of next week if it is to be approved by national parliaments in Germany and Finland by the end of the month.

Athens’ existing bailout by the European Union and the International Monetary Fund formally ends on 28 February and, if Greece passes that date without having struck a deal with its creditors, it could lose access to emergency funding from the European Central Bank. Without that support, Greece’s banks could collapse and the country would be forced to impose capital controls. That would spell the end of Greece’s stay in the single currency.

Is a deal even possible? At first glance the answer would seem to be no. Alexis Tsipras’s coalition insists the current bailout must be scrapped, a large chunk of the country’s foreign debt forgiven, and the austerity requirements relaxed. The eurozone opposes all of this.

Yet there is some hope. Greece’s debt burden could be de facto-eased by lowering the interest rate and pushing repayment dates out further. The bailout terms could be modified enough to allow Athens to claim it has been scrapped, while still retaining enough substance to permit the creditors to say it continues in spirit.

The bottom line is that “Grexit” would not be in the interests of Athens. It would plunge the country back into a severe recession and create a backlash against Syriza. Nor would it be in the financial interests of the eurozone, whatever bullish noises northern European politicians make about the ability of the eurozone financial system to cope with a Greek departure. The logic of self-interest still points to a settlement. But time is undeniably growing short.