Lawrence Summers: "Greece is Europe’s failed state in waiting"

From the Financial Times:

When, as now appears likely, Greece financially separates from Europe it will at one level be no one’s fault.
The Greek leaders will rightly explain that having imposed more austerity on themselves than any industrialised country has suffered since the Depression, they could not have done more without light at the end of tunnel in the form of a clear commitment to debt relief. European leaders will rightly explain that they adjusted their positions repeatedly to accommodate the Greeks. They will stress that their citizens would not permit Greece to play by different rules to the rest of Europe. And the IMF will rightly explain that it would have blessed any plan agreed by Greece and Europe that added up.

The trouble is that all the parties are going to get much more of what they fear from a breakdown than they would even from what they regard as an unacceptable compromise. Historians understand how the first world war was allowed to start but are still, a century later, incredulous that it happened. Financial historians may look back at the events of next week and wonder how Europe’s financial unravelling was permitted.

Make no mistake about the consequence of a breakdown. With an end to European support and consequent bank closures and credit problems, austerity in Greece will get far worse than it is today and it will probably become a failed state to the great detriment of all its people and their leadership.

When Greece fails as a state, Europe will collect far less debt than it would with an orderly debt restructuring. And a massive northern out-migration of Greeks will strain national budgets throughout Europe — not to mention the challenges that will, come as Russia achieves a presence in Greece....MORE