Economy Euro

Greek crisis: The euro exit is a bluff

15 May 2012
La Stampa Turin

As speculation rages about a Greek exit from the eurozone, we must grasp that the country cannot survive without the single currency and that Europe cannot afford to let it leave. That's why everyone should put their cards openly on the table.

The voters' verdict is already in across several countries and regions: the cure based strictly on austerity within the eurozone has failed. What needs to be done now is to take that reality on board and to start negotiations that promise to be difficult and that may lead to awkward compromises.

Greece, though, must be ready for anything. And it must distinguish between the reality and the threats and blackmail that are flying about at the moment.

Return of the drachma

Point one. Greece cannot survive on its own. Without the aid from Europe and the International Monetary Fund (IMF), it will very soon run out of money to pay its civil servants' salaries and to import what it needs for survival, starting with food and oil.

Point two. After the restructuring imposed on private creditors, almost half of Greece's debt is today held by Europe and the International Monetary Fund. If Greece doesn't pay, therefore, it will be mainly the taxpayers in the eurozone – i.e. all of us, at a thousand euros each, according to a rough estimate – who will be out of pocket.

Point three. The return to the drachma would be advantageous only in the imagination of poorly informed economists, mostly Americans. It now transpires that the George Papandreou government had commissioned a study that showed that even the two sectors that bring Greece its most significant revenues, tourism and shipping, would not be much better off with a devalued currency.

Point four. The real unknown is what collateral damage – apart from the failure to pay its debt – a possible bankruptcy of Greece would cause other countries in the eurozone. First of all, the spread with German treasury bonds could only go up. Certainly, the consequences would not have the same weight for everyone, falling harder on small countries, starting with Portugal, then Spain and Italy, and lighter on Germany.

Solidarity or rock-bottom?

There is no definite answer in the minds of the ministers of the Eurogroup that met in Brussels on May 14 to the question: should more support be held out to Greece, or should it be left to hit rock-bottom? At first glance, at least for Italy, solidarity seems cheaper than refusing to help; peering into the future, a Greece that has not been stabilised would become a ball and chain.

Since two political crises are intertwining here, one that affects the decision-making mechanisms of Europe and the other the Greek political parties, it's time to think about the alternatives that need weighing up, and to deploy a political rationale in doing so.

In Athens, a political system is collapsing. One must ask if the defeat of the two parties that previously dominated – New Democracy and the Socialists – is due to the tight deadlines demanded by Europe to clean up Greece's debt or to the unfair and inefficient distribution of sacrifices, which continues to protect the clientele and interests of the powerful.

Digging deep

Europe had called for shorter deadlines than the IMF was demanding precisely because Europe was wary of the politicians who were in power in Athens. And now Europe is wary of the Greek voters as well. Their votes have shifted to politicians from emerging movements, who are telling them a lie – that Greece can blackmail other countries more effectively by threatening to drag them into the abyss too if they fail to open their wallets yet again.

To confront these illusions, it is up to Germany and other countries demanding austerity to show that blackmail leads nowhere, because they themselves will not fall into the abyss. They need rather to come clean and set out exactly what acts of solidarity they would be willing to perform for other countries weakened by the crisis in the event that Athens does form a government bent on a tug-of-war. Otherwise, telling the Greeks to "sink or swim" would prove to be a bluff – one that the markets are already tending to believe.