by Reza Moghadam
January 26, 2015
Can Greece continue in the eurozone? That question is at the centre of a campaign of innuendo, threat and counter-threat playing out across Europe. It is a dangerous game.
The leftwing Syriza party, thrust to power in yesterday’s parliamentary elections, insists that austerity must end and official creditors must accept that some of Greece’s debt cannot be repaid. This message resonated with depression-weary voters. But it has elicited stern pronouncements from politicians in Berlin, commissioners in Brussels and central bankers in Frankfurt, who say such demands are inconsistent with euro membership. Everyone insists this is a debate about policy, not about Greece’s future in the euro. But talk of a Greek exit is back in the headlines.
The Europeans’ capacity to countenance, and even contribute to, the rhetoric of a Greek exit has been strengthened by market signals suggesting that an exit from the euro would damage Athens more than its partners. Asset prices have tumbled in Greece, but in the rest of the eurozone they have held steady. A banking union has taken shape. The European Central Bank has promised quantitative easing, in the form of across-the-board purchases of sovereign bonds. And Mario Draghi, ECB president, has offered reassurance with his pledge to do “whatever it takes” to protect the single currency.