German Chancellor Angela Merkel visited Athens today, facing some, shall we say, determined protests. Apparently seven thousand riot police protected Merkel on this trip, and for good reason. I think “image problem” is a bit of an understatement. Merkel, for her part, said she sympathized with Greek suffering, which for some reason failed to mollify the protesters.

But the bigger news here is that the Eurozone and the IMF may relent on the stringent deadline for Greece to meet deficit targets, amid their economic depression.

International lenders are considering giving Greece two more years to reach its budget deficit reduction targets, and the extra time could be financed without more money from the euro zone, Greek Finance Minster Yannis Stournaras said.

“It is now on the table by all members of the troika,” Stournaras told reporters of the two-year extension. “All the exercises that we are doing now they assume that the program will last up to 2016, that … 4.5 percent of (gross domestic product for the budget deficit) will be achieved in 2016 rather than in 2014.”

He added: “The implicit assumption is that the program will be extended despite the fact that it remains extremely frontloaded.”

This would extend the amount of time it would take for Greece to meet austerity targets. The choices here are between terrible and unimaginable. Forcing a 4.5% deficit in 2014 would be unimaginable. Forcing it by 2016 is just terrible. But it’s definitely the better of the two options.

The trick here is that this would amount to an extension of the relief program for Greece, meaning it would need to be financed accordingly. The funding gap is relatively manageable, however, roughly 12 billion euros. Considering how much money the European Central Bank plans to throw at the markets to save German and French banks (what, you thought they were saving Spain?), it’s a pittance.

The confidence from Germany about letting Greece leave the Eurozone appears to have subsided. That’s the real meaning of an extension. But this isn’t necessarily the optimal solution for Greece. It avoids a near-term disaster in favor of a long-term disaster. There are compelling reasons for Greece to just rip off the Band-Aid and exit the euro now, rather than limp along in a depression. But the Greek public does not believe that at the moment, so they limp along.

David Dayen

David Dayen