
Eurozone map, lighter blue areas are non-Eurozone countries that use the Euro. (image: Marc Baronnet)
We’re just two days away from a consequential vote in Greece. The lack of polling over the last two weeks and the closeness of the race between the far-left, anti-austerity Syriza, and the center-right, pro-bailout New Democracy, makes the outcome a genuine question.
The Greeks themselves don’t believe the outcome will lead to a Eurozone exit; but if Syriza emerges victorious, the Eurozone leadership could basically make it impossible for them to stay. Syriza is basing their ability to renegotiate the bailout/austerity deal on the fact that Europe knows they cannot lose a member and survive without contagion and futher carnage. But you get the sense that at least the Germans have convinced themselves otherwise:
Because there has been time to prepare, some economists say, Greece’s departure from the euro will not be as much of a shock as the collapse of Lehman Brothers in 2008, which provoked a global financial crisis. Nor is it likely to be as abrupt. Even if a new Greek government eventually decided it could no longer stay in the euro union, no one expects an immediate, hasty exit.
Lehman was a surprise. But Typhoon Greece has been swirling offshore for months if not years, giving investors, governments and euro zone citizens plenty of time to batten their financial hatches.
They have drained money from Greece and put it into assets considered safe, like German or Swedish bonds. Foreign businesses with operations in Greece have been demanding payment up front from local customers, lest they later have to accept devalued drachmas. Some, like the French bank Crédit Agricole, are putting their Greek operations under quarantine to keep any infection from spreading.
I think this misses the point. A couple French banks may be safe or some foreign creditors. But the problem is that a Greek exit, probably by force, will tell depositors in the other struggling countries that they could be next. And then you’ll see the capital flows out of Spain and Portugal, and even Italy, as the bank jogs become bank runs. At a higher level, the bond yields of those troubled countries will soar since they’d face a default situation. That’s the fear of contagion.
The bigger problem is that Germany, while appearing to bend on a couple matters earlier in the week, is now talking about their “limited control of events.” Those were the words Jens Weidmann, the President of Germany’s central bank, used yesterday (“we have reached the limit of our mandate”), and so did Chancellor Angela Merkel.
“Germany’s resources are not unlimited,” Ms Merkel said, warning parliament that the eurozone crisis would dominate the agenda of next week’s G20 summit in Mexico.
In a restatement of the limits to German action in tackling the debt crisis, she reeled off a list of unacceptable demands from other countries – including the US and UK – for “big bang” solutions to solve the crisis.
They included jointly guaranteed eurozone bonds, which she described as “counter-productive” and illegal under the German constitution, as well as a publicly financed European bank deposit insurance scheme, and France’s new call for a “financial stability package” [...]
“Germany is strong, Germany is the economic engine and … the anchor of stability in Europe,” she said. Her country was “putting its strength and its power to use for the wellbeing of people, not just in Germany, but also to help European unity and the global economy. But Germany’s strength is not infinite.”
A lack of leadership while pushing Greece into a situation that will require massive leadership to contain is a recipe for disaster.




19 Comments

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“Germany is putting it’s strength and power to use for the wellbeing of people…”
Ah, no; Germany is putting it’s strength and power to use (or trying to…) for the well being of German banks and global corporatism.
It’s the old parental mantra: “This hurts me more than it hurts you. WHAP!”
It’s not just going to require massive leadership in Greece, it’s going to require a belief by Joe and Jane Sixpaktavos that they’re not getting hosed cross-eyed.
Which, I guess you could say, at this point, WOULD be massive leadership.
That the lenders are already requiring payment before the crisis might peak, tells you what they think.
The Euro can’t work, period. It imposes a single set of FX rates on vastly different economies. Massive fail.
If Syriza wins, I predict that Germany will refuse any substantial renegotiation with Greece, which will then exit the euro. However, I’m willing to bet that some kind of deal will be struck with Spain, and then Italy to keep the euro going.
But I’m always wrong in my predictions.
‘Zactly. Choked on my coffee reading that Merkel quote. As if.
To add, that Merkel quote is exactly the kind of self-rightous neoliberal bs that has infected the entire globe with disasterous upward transfers of wealth. Vile.
Ironically that would be the best thing for Greece, or at least the Greek people. If they follow the Icelandic model their suffering will be shorter and it’s unlikely it would be much worse than being under the boot heel of perpetual debt enslavement to the ECB.
Happened to be in municipal court last week. Guy sitting next to me was Greek. He lost his case. Not a happy camper. Reacted rather bitterly to the verdict and had to be restrained by the bailiff.
Iceland. That should be on the lips of everyone in Greece, Spain, Italy, etc. There is only one successful way out.
I thought no one here was supposed to concur with Milton Friedman. . .
Still, he was right about the Euro’s fate. His expected timeframe, just a decade, was a bit stingy though.
It’s his policies, employed by the Banksters in the US and the UK, that have engendered this result. Gotta keep the Dollar as the preferred global currency at all costs.
Congratulations Yellowsnapdragon you qualify as a Financial Expert; if you had been right once you would qualify as a “Financial Guru”. :)
You mean the next Viking invasion?
Goal!
The nitwit’s self-fulfilling prophecy sure cost us. Why is it that our nitwits can’t see that the disintegration of the EU will not produce de-globalization? We need a globalization of labor and you ain’t gonna get that by playing by the crapitalists’ rules.
I thought there was an inverse relationship between high status of the economist and the number of correct predictions. One correct prediction and I would be mocked as a liberal. Two correct predictions, socialst. Consistent correct predictions would denote a Marxist.
I’m wearing my horned hat in preparation. Aren’t you?
I agree about his toxic policies.
Still, he correctly saw the Euro failing and why. Maybe it was inadvertent on his part.
If I recall correctly, he said the Euro could not survive for long without a fiscal and political union, which was unattainable. I don’t think that, in itself, caused anything to happen. So he was a euroskeptic.
The rest of what you say I’d agree with.
Polling was shut down well prior to the election, but the last polls showed the left party moving up. Many suspect polling was shut down so that manipulation is easier to fob off on populace.