Wither Greece?

I would agree with all of that (although I would add that Greece needs to get its house in order too, re tax avoidance/evasion and corruption (matters I can vouch for to some extent, knowing someone who recently lived in and ran a business in Greece for some 15 years)).The problem is, Germany and the rest of the Northern Europeans are extremely worried that if they forgive as much of the Greek debt as they would need to, in order to allow a recovery, they'd have Portugal, Ireland, Italy and Spain knocking on the door, demanding similar treatment, with much bigger numbers.Edited by vimesey, : Spelling

As I understand it, it's twofold.First, if the debts aren't repaid, then to some extent or another, taxpayers in other countries will end up paying more (as a result of their countries not getting some of the cash back). The concern is that those taxpayers will see that as unfair (not an unreasonable feeling for them). However, that's more of a political issue than an existential or economic one for the EU.Second, if the EU/IMF/other creditors say yes to Greece's debt being written down, they'll face screams of "why not us too" from Portugal, Ireland and Spain - and their debts are orders of magnitude higher than Greece's. (And they went through the pain of austerity - and still are, without significant complaint). At worst, this leads to a far bigger economic crisis within the EU. At best, it significantly strengthens the hands of political parties in those countries (and elsewhere) who want an end to the EU.The solution in Greece is pretty clear, in the isolated context of Greece, but it has big political ramifications in a wider context.

At its heart, this situation wasn't completely (perhaps not even mostly) about economics - primarily, I think, it's political. Europe couldn't be seen by its non-Greek electorate as backing down. And also, I think there was an element of slapping down Tsipras, even as he pushed his bluff to its absolute limits, in order to send a message to similar anti-austerity groups in the rest of Europe. In other words, you play it our way, or you go bust.I suspect that what Europe will do, is see whether Greece can rid itself of the corruption and the productivity/benefits imbalance, and then quietly restructure and write down debts, to help the recovery of a Greece which has been restructured into a more credible economy. There was no way they were just going to let Greece go back to the way things were.