This Greek tragedy could end in utter ruin –

Neither of these aims is particularly mad in itself – in some respects, they
are just what the doctor should be ordering. But they are very likely
incompatible with continued membership of the euro.

Syriza has moderated its demands somewhat as it attempts to distance itself
from the electorally damaging charge that a vote for it is a vote for
“Grexit”, yet it doesn’t much alter the underlying choice. Syriza wants to
stay in the club, but it wants to rewrite the rules in a manner that allows
it to throw off the shackles of austerity. By threatening unilaterally to
repudiate Greece’s debts, Syriza’s leader, Alexis Tsipras, is in essence
engaging in a high-stakes game of poker: give us what we want, or we’ll
trigger a new eurozone crisis.

Sadly, the most likely outcome of this strategy is utter ruin: for Greece,
which would find its bluff very rapidly called, and perhaps for the rest of
the eurozone, which badly underestimates the contagion in the financial
markets that would result from a chaotic Greek exit.

Admittedly, Europe’s banking system is much stronger than it was during the
meltdown of 2011/2. The eurozone has also buttressed itself with a number of
backstops, including the promise of unlimited bond buying by the European
Central Bank. It is sometimes argued that the rest of the single currency
would actually be strengthened by a Greek exit, which might provide such a
shocking example to others that they would finally get fully behind the

Yet this is just wishful thinking. Once the markets have dislodged one member,
the principle will be established: they will soon be picking off others. And
it won’t be hard to do so, given the political instability and loss of trust
that the euro has managed to create throughout much of Europe.

In any case, the immediate consequence of a non-negotiated Greek default would
be the withdrawal by the European Central Bank of its support for the Greek
banking system. To fill the gap, the central bank in Athens would have to
provide its own liquidity, at which point Greece would effectively be out of
the euro.

What capital was left in the country would scramble to leave. Economic
output would crater anew and inflation would sky-rocket. The deprivation
Greeks have suffered thus far would look insignificant compared with what
was to come.

For them, it would be horrendous enough. But to abandon one of its own so
casually would scarcely be much better for the EU – predicated as it is on
the manifest destiny of ever closer union. It would be the beginning of the

Greece has always been the eurozone’s weakest link, but it is also no more
than a proxy for the single currency’s wider vulnerabilities and

As with past flare-ups, abject disaster may yet be averted. Greeks may come to
their senses and vote against Mr Tsipras. If he wins power, he might blink.
Or Berlin might. Only one thing is entirely certain: rather than recovery or
stability, 2015 will bring yet another chapter in the eurozone’s apparently
never-ending saga of turmoil and crisis.


Write a Reply or Comment:

Your email address will not be published.*