EU-Greek Drama Deepens As A Deadline Approaches

By Marilyn Geewax

Published February 17, 2015 at 4:01 PM EST

Greek Prime Minister Alexis Tsipras addresses lawmakers at the Parliament in Athens on Tuesday. Greece is in talks with European finance ministers over its debt.

This time, they're done. Through. They're walking out the door on Friday.

Unless they aren't. Unless they renew their vows and their union grows ever closer.

That's basically where Greek officials and European finance ministers are in their complicated relationship. After years of possible-breakup drama, a real deadline will arrive Friday and the parties must decide: Are we in this thing together or not?

If Greece tells Europe, in effect: "Fine. Walk away. Russia will love us instead," then Europe — and the United States — may have a whole new set of economic and geopolitical problems to worry about.

There were hints Tuesday that Greece is moving toward saying: "Wait! Let's talk. I know we can work it out." Those positive rumors kept European financial markets calm — for now.

But economists say real stability will come only when the hints and rumors have been turned into a clear proposal.

This fraught relationship has been having its ups and downs for so long, you may have stopped paying attention. To help you catch up, here's a 1-2-3 recap, and a look-ahead to Friday:

1. Greece is a small country with a big problem; for years, it was spending too much. So the government had been borrowing a lot, and finally it could not meet its debt obligations when the global recession hit.

2. But Greece is not a stand-alone country, free to default on debt or devalue its currency. It's part of the European Union and uses the euro. Europeans did not want one of their members to tumble into financial chaos.

3. So EU finance ministers helped cobble together a plan to bail out Greek debt in exchange for the country raising taxes while cutting wages, pensions, public investment and social security benefits.

The Greek economy plunged into profound recession for several years, but with the bailout in place, it started improving last year. Still, a lot of Greeks who had depended upon government pensions and paychecks were suffering. In late January, voters elected a new prime minister, Alexis Tsipras, who opposed austerity.

The timing of his election was, shall we say, awkward because on March 1, Greece's credit lines will expire.

Europe's finance ministers met Monday. They had hoped to come up with an extension of the bailout package — with its attached austerity strings.

Negotiations broke down. Afterward, Greek Finance Minister Yanis Varoufakis told reporters: "In the history of the European Union, nothing good has ever come out of ultimatums."

Dutch Finance Minister Jeroen Dijsselbloem kept holding firm, saying Athens must agree to more austerity and make the next move: "It's really up to the Greeks."

But there's little time left. Friday is the real deadline because national parliaments need time to ratify any deal before the Feb. 28 expiration of the existing bailout.

Speculation had been swirling that Greece might turn to Russia or China for help. That would be a bad outcome from the perspective of U.S. and European officials, who do not want Greece to grow distant from Europe; pull out of the euro currency union; or default on its debts.

Any of that could shake up financial markets. There's been more than a hint of jitters in the banking sector: Greek banks reportedly have been losing deposits at the rate of 2 billion euros ($2.27 billion) a week.

IHS Global Insight, a forecasting firm, issued an assessment Tuesday morning saying that failure to reach an agreement could cause turmoil in Greece, bringing "a re-emergence of wide-scale protests, riots and labour strikes, which would cause disruption to businesses."

But on Tuesday afternoon, The Wall Street Journal quoted an unnamed source saying Greece will try to escape such turmoil by asking for a temporary credit extension of up to six months. So maybe, once again, there will be no clear resolution, just another agreement to keep living together — for now.

Although most economists side with EU officials, some liberals don't. One example is U.S. Sen. Bernie Sanders, an independent from Vermont. He says Greece should stand its ground and European officials should allow Tsipras to do what Greek voters want.

Blocking him from reversing austerity would "make a sham of the recent democratic election held there," Sanders said in an essay.