Sunday, March 15, 2015

Why smoke and mirrors are safer than cold turkey

by Wolfgang Münchau

Financial Times

March 15, 2015

When German economic illiteracy meets with Greek diplomatic illiteracy, nothing good will come of it. Last week, a Greek minister threatened to swamp Germany with Islamic refugees. The Germans are again debating an accidental Greek exit from the eurozone: Grexident. Alexis Tsipras, the Greek prime minister, linked a claim about second world war reparation payments against Germany to present discussions on the extension of a loan agreement.

The reparations claim itself is not frivolous. There are even German lawyers who believe Athens has a case. But it is politically mad to link the two. What we are hearing is not the usual noise: there is a loss of trust.

The conclusion I draw from this is that the odds of a Greek exit from the eurozone have shortened dramatically in the past two weeks. The two sides may tone down their rhetoric in the coming days but I cannot see the creditor countries relenting on the conditions of last month’s debt rollover agreement. Nor can I see the Greek government fulfilling them. Since nobody knows how many days or weeks Athens is from insolvency, the risk of a sudden exit is clear and present. Grexit may never happen — but it is time to get ready.

Grexit is not an outcome any rational person would wish for. It will undermine the EU’s geostrategic influence. Economically, it will unmask a hidden truth: that the monetary union is just a beefed-up fixed-exchange system. A large number of financial contracts would instantly default. It is unclear how the global financial system would cope. The eurozone’s fledgling economic recovery would be at risk.


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