As the Europeans meet and speak and summit, it becomes ever clearer just how intense and complex matters have become. Later in June, Greece will determine whether it will stay in the eurozone or perhaps even exit the European Union. In or out, Europe and Greece will have to cope with the aftermath of the decision. Even as Greek questions remain open, a broader drama has grown around recent proposals for the union to issue eurozone bonds that would draw on the generalized credit of all members in common. Though Berlin will likely block such efforts, the negotiations could put Germany in such an uncomfortable position that it will offer other forms of compromise, perhaps by softening its position on austerity or by contributing more generously to the European Stability Mechanism.

The Greeks will effectively decide on membership in a June 17 vote and then, no doubt, in subsequent parliamentary maneuvering. On the chance that the nation does decide to leave, European officials are already working on arrangements that will permit Greece to step out of the common currency but remain in the EU. The decision will almost surely be a Greek one. The rest of Europe does not want to throw Greece out, however troublesome it has become. They know that Athens, whether outside the eurozone or in it, will still owe the money in euros and still have trouble paying. But with Greece outside the union, the Germans and others would lose control. Since they cannot avoid dealing with a failing borrower, they surely would prefer a situation in which they have some control. 

If Greece decides to stay and get aid from Europe's Stability Mechanism, it will, of course, have to abide by austerity measures. If Greece leaves, it will almost certainly repudiate the debt. Frightening as this second alternative seems on the surface, it may prove to be a non-event for Europe, if not for Greece. After all, the privately held Greek debt has already seen writedowns amounting to 70% of its face value. A loss of the remaining 30% would hardly break the European banking system, especially since Greek debt outstanding, even before the writedowns, amounted to less than 1% of all European bank assets. The remaining debt, held mostly by the European Central Bank (ECB) and the International Monetary Fund (IMF), would likely be renegotiated or, if repudiated, readily replaced by the ECB through its money-creation mechanism and by the IMF by drawing on its members, including the United States. The real risk of Greek withdrawal is that it might engender a run on Spanish and Italian paper. This kind of contagion could be very damaging, though chances are the European Central Bank (ECB) would disarm the worst effects with additional liquidity flows, including direct purchases of Spanish and Italian bonds, as it did last year. 

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