Tuesday, July 24, 2012

Greece Is On Its Way Out ...

I'm not normally a betting man (although I do invest in the casino known as the financial markets, which may be a crazier thing to do than putting on a tux and heading for Monte Carlo), but I'm willing to give odds that Germany has decided to let Greece go. I know that the FDP doesn't speak for Germany, but here is what the party's secretary-general said:
"Athen ist bei der Euro-Rettung zum Hemmschuh geworden. Die mangelnden Fortschritte Griechenlands bei allen Reformen, Sparvorhaben und Privatisierungen führen dazu, dass die Finanzmärkte die immensen Anstrengungen in anderen europäischen Ländern nicht ausreichend würdigen", beklagte Döring nun.
"Athens has become an impediment to saving the euro." You can't put it any more bluntly than that. Making an example of Greece didn't prevent contagion to Spain and Italy, which was the real purpose of putting the screws to Greece, so why bother pouring more money into that bottomless pit? So say Germany's archest neoliberals. So it's on to plan B, or is it plan W--I've lost count.

Hollande has thus far been quiet, but with Germany now on negative watch by the ratings agencies, it's clear that Europe must try something new. If the Germans jettison Greece, there's not much France can do to stop them--if it even wants to. But the growing danger is that Germany may decide that it's had enough of the euro altogether. It may persuade itself that it conceded too much to France in the construction of the euro, not to say the EU, and decide to go it alone, or propose a new currency union excluding the troubled economies. I think the endgame has begun, and France will not be able to remain silent much longer.


bernard said...

I suspect you are right and that, perhaps, Germany wants to restrain the Eurozone by excluding what they used to call the club med countries. The question then becomes what of France. Would France want to stay whithin what would become a greater Germany zone or not.

bert said...

On current poll numbers the FDP won't be represented in the next parliament.

I share your view though that opinion is hardening in Germany around the desire to have the Greeks outside the euro. That is balanced by an entirely justified fear of contagion.

With my own tuxedo on, I'd bet that there'll be a further revision of the terms to which Greece is subject, in an effort to put off the reckoning. That will be accompanied by all kinds of fierce growly noises, both from the German hardliners and from government sources anxious to persuade an angry German electorate.

Longer term, though, Greece's debt situation looks impossible. A default while remaining in the euro looks like the best option from their point of view, but they need a solid primary surplus before they try anything so drastic, and as the economy deteriorates that prospect continues to recede.

Where I differ from you, Art, is in your notion that there is any appetite in Germany for going it alone. The entire history of the postwar period showed them singlemindedly doing the precise opposite. Security anchored in the Atlantic Alliance; political economy in the EU. (There's also an entirely separate but equally powerful argument regarding what a reintroduced DMark would do to German export competitiveness.)

I suspect you may be picking up on the distress signals coming out of the French elite, who now wake up each morning to have their noses freshly rubbed in the realities of German power. It's not something they're used to, and it's got them neurotic and slightly skittish.

AlastairZ said...

While I concur that Germany is hardening its stance towards Greece, I in fact think this is a ruse because the risk to the Euro (via contagion) is too great for Germany to risk. Greece is 2% of the Euro economy. Would you risk your own livelihood over a 2% loss?
The answer is obvious and it will eventually come to a Eurobond issue (although I'm sure this will drag on till end of the year). It would also be good to have a non-US bank owned ratings agency in the mix!
Britain and the USA are in far worse economic shape than the Euro and they are very keen to keep our attention focused elsewhere!
My 2.5 cents
Alastair (Nantes)