Greece ‘will probably become a failed state’ without a deal

The defaced facade of the Bank of Greece is seen after a night of violence which followed the Greek parliament approval of a deeply unpopular austerity bill in Athens, February 13, 2012. As Greeks head back to the polls in an election that may help to decide whether they stay in Europe's common currency, and as Cypriot politicians move closer to asking for an international bailout - perhaps as early as this week - the story of Andreas Vgenopoulos and Marfin helps explain how Greece and Cyprus got here. Picture taken February 13, 2012.

Europe’s future might be on the line.

In a chilling op-ed in the Financial Times Saturday, economist Larry Summers published a dire warning to the continent: If creditors don’t figure out a way to hammer out a deal with the Greeks, the southern European country is likely to become a “failed state.”

That has huge implications for all of its neighbours.

He goes as far as to compare the current situation to how politicians in Europe handled the run-up to World War I:

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.

He also argues that a failed Greece is likely to be much more expensive to Europe than bailing it out:

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.

Debt negotiations between Greece and its European creditors, known as the troika, are down to the wire. There are reports that Monday is the last chance for the two sides to strike a deal, and given the hostilities that have been reported over the last several months of negotiations, the outlook isn’t good.

Bloomberg is calling this a “weekend of fear in Greece,” reporting that terrified Greeks are trying to get their money out of the banking system, unsure if it will still be standing next week.

All eyes are on Monday, when the next — and perhaps final — round of negotiations begin.

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