Expulsion of Greece from the eurozone could trigger social and economic chaos, writes Simon Tisdall.

Editor’s Note: Simon Tisdall is assistant editor and foreign affairs columnist at The Guardian. He was previously foreign editor of the Guardian and The Observer and served as White House correspondent and U.S. editor in Washington D.C. The opinions expressed in this commentary are solely his.

Story highlights

Europe faces challenges on many fronts - over Greece, on migrant crisis and from Russia, writes Simon Tisdall

Tisdall: In wake of UK's decision to hold in-out referendum on EU membership, clear there is appetite for genuine reform

200 years after Britain saved Europe at Waterloo, he adds, could UK PM David Cameron do same again?

CNN  — 

Has the post-war dream of a grand union of democratic states been shattered beyond repair?

North American observers might be forgiven for thinking so, given the unprecedented tidal wave of public recriminations, personal insults, and dire predictions spewing forth from the European Union’s panicky and divided leaders.

Simon Tisdall

The principal cause is the imminent climax to the crisis over Greece’s undeclared, de facto bankruptcy. The country is €323 billion ($352.7 billion) in debt – more than 175% of its GDP. It cannot pay what it owes to other European countries and the European Central Bank. Its next big loan repayment, of €1.6bn to the International Monetary Fund, falls due June 30, and Greece is heading rapidly for default on that payment.

If it doesn’t pay, Greece will become the first developed country to fail to pay back the IMF.

Rapid slide towards default

Greece’s debt crisis has escalated rapidly in recent days.

The left-wing Syriza government, led by Alexis Tsipras, has confirmed Greece will be unable to repay the IMF – and talks on how to save the country from defaulting on its debt collapsed two days ago. Tsipras blindsided European ministers by calling a referendum on the bailout.

He called the terms European ministers were offering to release €7.2 billion in bail-out funds “blackmail” and said he would put the decision on whether to accept them to the Greek people on July 5.

Talks collapsed shortly after and the situation in Greece has deteriorated rapidly: Banks have been closed and cash withdrawals limited to 60 euros in an effort, the Greek government says, to protect the financial system.

Around the world, the markets have been hit hard by the unknown implications of Greece failing to repay its debts.

Yannis Stournaras, Greece’s central bank governor, warned previously that failure to reach a deal would “mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union.”

Greece: First country to leave eurozone?

If Greece is expelled or otherwise forced to drop out of the eurozone – the group of 19 countries which have adopted the euro as their common currency – the consequences could be catastrophic and far-reaching. For Greeks, it could trigger bank collapses, emergency controls on capital flight, non-payment of salaries, and broad social and economic chaos. For the EU, it could spell the end for the euro if market confidence fails and other severely indebted states decide they, too, can’t or won’t pay up.

The crisis, ostensibly about money, has become increasingly political. Many in Germany, Greece’s most powerful creditor, believe successive governments in Athens have behaved irresponsibly and should be made to pay the price, morally and fiscally. Andreas Scheuer MP, a close ally of Chancellor Angela Merkel, said: “The Greek government … are behaving like clowns.”

For her part, Merkel wants a compromise in which Greece would agree more austerity measures in return for continued funding. She says Greece must stay in the euro, for she knows the stakes are high. Back in 2010 she warned that “if the euro fails, Europe fails,” and that still seems to be her view. But Tsipras, who accuses creditors of “pillaging” his country, casts Germany in the role of domineering bully, a characterization that has strong historical resonance across Europe.

Overwhelmed by migrants

Merkel’s leadership is under challenge in another big crisis facing the EU – one which is potentially even more destructive than Greece’s bankruptcy. So far this year more than 100,000 migrants have traveled to Europe illegally across the Mediterranean from north Africa to Italy and Greece. Britain’s Royal Navy, which is conducting search and rescue operations, estimates a further half-a-million refugees are waiting their chance in Libya.

Overwhelmed by new arrivals, Italy is at odds with France and Austria, who have been turning back migrants heading north. Eastern European countries have rejected Merkel’s idea of a mandatory quota of migrants for every EU country. Britain says it will not take any at all. And as talks this week again failed to forge a common policy, Italy threatened to “hurt” Europe for its irresponsibility by issuing all new migrants with visas, meaning they could potentially travel wherever they choose.

This extraordinary surge of refugees fleeing wars in Syria, Iraq and Somalia, together with repression and poverty in Eritrea and west Africa is unusual. But immigration, broadly speaking, has long been a divisive issue throughout the EU. It has fueled the rise of xenophobic, nationalist political parties from France and Britain to Finland and Poland that are antagonistic to the EU.

Fringes gain ground

At the same time, the economic recession after the 2008 global financial crisis that brought mass youth unemployment to many EU states has encouraged the formation of left-leaning populist movements. One such, the anti-austerity Podemos in Spain, is tipped to cause a big upset in elections later this year, just as Syriza did in Greece last year.

These activists, of right and left, say the EU, under the doleful influence of conservative, penny-pinching Germany has become remote, uncaring, corrupt and self-serving. They say it ignores the needs and troubles of ordinary citizens (as in Greece). They demand social solidarity and jobs, not market-driven fiscal discipline. And they voted massively against politics-as-usual in last year’s European parliamentary polls. But, they complain, Brussels has just carried on as normal, as though nothing changed.

This grassroots upsurge in hostility to the EU and conventional party politics coincides with a third momentous challenge to the concept of a united Europe – the decision by David Cameron’s government to hold an in-out referendum on Britain’s membership. Cameron’s Conservatives say the EU must reform or die. One key proposal, linked to the immigration issue, is curbs on the free movement of people within the EU.

The British move was initially greeted with patronizing complacency in Brussels, where officials suggested the UK, not the EU, was the problem. But it has become increasingly clear that there is a huge constituency throughout Europe for genuine reform, a perception confirmed again by this week’s election in euroskeptic Denmark. Meanwhile, politicians in France and Poland, for example, are belatedly realizing that a British exit could seal Germany’s dominance at their expense. They also worry how the EU can fend off Vladimir Putin’s predatory Russia without Britain, Europe’s biggest spender on defense and a key U.S. ally, riding shotgun.

Europe is not over, yet. But it is in deep trouble. In the week that saw the 200th anniversary of the epic Battle of Waterloo, when Britain saved the continent from Napoleonic dictatorship, it is ironic that Cameron, not Merkel, may be emerging as the more in-touch leader who could, potentially, save Europe again.