Wednesday, May 16, 2012

Greece: The End in Sight?

So many people, Mario Draghi not least among them, have begun talking about a Greek exit from the euro that the prophecy is becoming self-fulfilling. There has been a slow run on Greek banks for some time now, as Greek savers transferred a part of their savings to other European countries, but the run has accelerated in recent days and has now reached the unsustainable level of 800 million euros per day. The euro fell to $1.27 against the dollar.

Meanwhile, as Bernard pointed out in comments, France conducted a successful bond issue, selling 8 billion euro at a lower interest rate than the last sale, thus giving the lie to Sarkozy's prediction that markets would tank if Hollande were elected. Unfortunately, Bernard's interpretation, that this successful bond sale means that I am exaggerating the severity of the euro crisis, is wrong. What it signifies is that investors are shifting funds to the stronger sovereigns, such as Germany and France. It is neither a vote of confidence in the Hollande government nor a vote of confidence in the eurozone. It's just a sign of flight to the deepest pockets as Greek destitution looms.

Merkel and Hollande made some comforting noises about rekindling growth in Greece and holding the eurozone together, but behind the scenes the talk grows darker by the day. I don't know about Hollande, but I'm fairly sure that the Germans have decided that Greece is hopeless and have chosen to make their stand in Spain. For Greece, whatever comes will come. It will be impossibly hard on the Greeks either way, stay or go, and the political system may not hold. Anything is possible, and the election and its aftermath showed that impending doom has not concentrated the mind, as Dr. Johnson believed it would, but has rather unleashed the wildest fantasies and the most uncontrollable passions.

History did not end in 1989. Far from it.

4 comments:

bernard said...

i had not realised having explained why the bond auction had been so successful. to be clear, hollande will be judged on unemployment five years from now. That is the point of Sapin.

Anonymous said...

At this point, the only reason to stick with Greece is to save Spain. I fear that German policymakers are underestimating how difficult it will be to decouple the two AND they have yet to show that they'll even do what it takes to save Spain, so...

Anonymous said...

Re: History ending: And yet Syriza is not offering a clear ideological alternative from messy liberal-democratic, mixed-economy capitalism. They're leftist to be sure, but their main contrast is in terms of bargaining strategy, and they *want to remain a part of the eurozone*. Actually fits well within the parameters of Fukuyama's loose thesis...

Anonymous said...

re Syriza take a read here for an ex communist's view of Syriza: Sorry, but SYRIZA won’t save Europe | Brendan O’Neill | spiked http://bit.ly/JROPRw