There’s an interesting article by Matthew Lynn discussing the possibility of Greece’s exit from the Eurozone or the ‘Grexit’ as it is now popularly called.
Since the collapse of coalition negotiations and the call for new elections in a month’s time, many analysts are now seeing Greece’s exit from the Eurozone and default as imminent. Lynn notes that;
Citibank rates the chances as high as 75% that Greece will leave the single currency in the next 18 months. The British bookmaker William Hill regards it as such as done deal it is no longer taking bets.
We discussed in an earlier post why Greece’s exit is pretty much inevitable. Basically, the country is broke, broke, broke. Actually Greece is beyond broke. They have no chance of repaying their debt, no matter how much help comes their way.
However, this is where Lynn diverges from the view now being bandied among European capitals, by saying that this forced exit will never happen because…Germany will back down. He continues;
It isn’t going to happen. Germany will realize the risks involved, eat its words and come up with a mega bailout. Instead of a ‘Grexit’ we’ll see a “Grashall Plan” — as a Marshall Plan for Greece will quickly be dubbed — to reflate its economy and keep the euro staggering on for a couple more years, at least.
The reason he states is that the risks are just too great. There could be contagion, he writes, there could be chaos in Greece (they invented the word too), millions of refugees could stream out of an unlivable Greece.
Well, I disagree. Not because there are no risks, but because Greece simply cannot make it. I believe, like Citibank and bookmaker William Hill, that right now, the EU is already planning a Greek exit to be executed within a few months.
Chaos? Well, there’s already chaos in Greece. There is no government and not likely to be one, even after the next election. Better to cut the diseased limb off now, stop the bleeding and who knows, Greece may end up like Argentina or Iceland. They defaulted and the sky did not fall.
No, what the EU will find unacceptable is throwing hundreds of billions down the crapper in Greece, while the money could well be used to build a firewall around those countries who have a chance of making it in the Eurozone, such as Spain, Ireland, and Portugal.
To Lynn, I’d say, every strategy has risks. The sooner Greece moves on, the earlier they can begin to heal. The paradigm has to be changed for the Eurozone to move forward. With Greece, there will just be one crisis after the other.