German Chancellor Angela Merkel and French President Francois Hollande met yesterday in Berlin, in what was kind of an awkward summit. But they did appear united on one point: that Greece must keep their promises and stay in the Eurozone.
Both spelt out their concern that Greece should remain a full member of the common European currency, while promising to consider new measures to revive economic growth in the country. But they also agreed that Athens must carry out the austerity programme it has agreed with the European Union and the International Monetary Fund [...]
“We have to respect that there will be new elections in Greece,” she added. “We will make it clear that we want Greece to remain in the eurozone, and that is what the citizens are voting on.”
That meant fulfilling the commitments in the EU and IMF programme, she said, but added: “We will also give proposals to Greece to encourage growth.”
Mr Hollande went further, saying that “I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity, so that there is a return to growth in Greece.”
The lip service toward growth is charming, but basically France and Germany united on keeping the same austerity program alive in Greece, the one that has caused a major backlash and new elections, with the prospect of the anti-austerity far left coming to power. That could trigger a Eurozone exit. Because the Eurozone remains staggeringly popular in Greece, European leaders and even the press want to frame the new elections that way, as a referendum on the euro.
In anticipation of that, we’ve seen a major capital flight from Greece.
Greek depositors withdrew €700 million ($898 million) from the country’s banks on Monday, fueling fears of a bank run amid the growing political disarray.
With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area.
Greek President Karolos Papoulias told the country’s political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some €800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures.
Obviously, if Greece leaves the euro, a massive devaluation would ensue. So the smart move would be to shift your euros into another country’s bank, and there are no limits on this kind of transfer in the Eurozone. That’s an old-fashioned bank run, and it’s what you would expect out of other troubled Eurozone countries if Greece ends up leaving.
Despite all this, Eduardo Porter makes the point today in the New York Times that exiting the euro may still be the more rational option. You have to compare the chaos that could ensue from returning to the drachma to the alternative, with an austerity-induced depression and little hope for growth at any point. And that’s true across Europe.
A little over a decade since the first euro bills hit the shops in Madrid and Berlin, the euro’s design flaws have pushed much of the European Union into a deep economic pit. And political imperative is again being deployed as a major reason to stick to the common currency. “This enormously important motivation is often underestimated by outsiders,” argued the Financial Times columnist Martin Wolf, the most sober analyst of Europe’s economic maelstrom.
Yet for a project intended to draw Europe together, the euro did surprisingly little to build solidarity. German voters endured a recession two decades ago after bringing in their brethren from the Soviet bloc. They now appear unwilling to spend a pfennig to help the Greeks, Spaniards, Portuguese, Irish or Italians.
Conceived as a tool for integration, the euro could, instead, tear Europe apart.
The currency works for nobody, save perhaps Germany. And despite their “strong” 0.5% growth in the first quarter of the year, that actually indicates that the euro crisis is bringing them down as well. The euro was supposed to bring Europe closer together. It’s only driving them apart. Countries with no ability to set their own monetary policy based on local conditions are countries that cannot survive. So there are no good options, but the status quo is certainly unsustainable.