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As the end game approaches in the Greek chapter of the Euro Crisis, it is easy to suppose that Greece will exit the Euro.
And there are ample reasons for that conclusion.
If you were Greece, saddled with debt that you could never repay…
While at the same time enduring crushing austerity that puts 25% of your labor out of work and is politically impossible to maintain for very long…
You’d want to bail from that “bail out” too.
And the kicker?
You (Greece) are making debt service payments that drain more capital from your economy for no real beneficial long-term purpose--other than to satisfy your creditors…
Who, by the way, had no problem removing your elected prime minister because he wanted to give Greeks the chance to vote on their shared destiny of austerity.
Good-bye isn’t free
Given all of that good news, the idea of leaving it all behind makes a lot of sense.
And that is the expectation, if not the desire, among many observers.
But don’t think that leaving the Eurozone wouldn’t have its downside as well.
Greek banking will be destroyed and borrowing will be impossible--for a while at least.
How would debts in euros be repaid? How would the Eurozone react?
Who would want to do business with Greece and its new drachma with very little of an economy to back it up and even less of a reputation?
And how would a new drachma value even be determined? Which trading partners, if any, would accept it?
All big economic unknowns, certainly, and no picnic any way you slice it.
A Greek lurch to the Right?
And politically, Greece may sink into further chaos and political paralysis.
Social disintegration might lead to a sharp turn to the right, such as the Golden Dawn Party—a neo-Nazi group ready to step in and provide order to chaos while Greece struggles to redenominate its economy in a new and very cheap drachma.
These are all very real issues, among many others, that Greece would face if it leaves the euro. And the odds look to be great that it will do so…
But will that be the case?
From an economic point of view, it looks like Greece would be better off leaving the euro—or at least no worse off…
And maybe even Germany would be better off, too. It would certainly mean that Germany’s burden of bailing out Greece is no longer needed…
The European Central Bank would also be off the hook for any further Greek bailouts…
All good reasons for a Greek exit…
But there is another side to the situation…but there always is, isn’t there?
The politics of the Euro
And which side would that be?
That would be the political side of the crisis.
Simply put, it is the idea of a unified, integrated Europe as a political creation, that is greater than the sum of its parts.
The fact is a “United States of Europe” has been in the core idea of European politics since the end of World War II.
Various treaties throughout the decades, from the Treaty of Paris in 1951, which formed the European Coal and Steel Community and the Treaty of Rome that established the European Economic Community in 1958, to the Maastricht Treaty in 1993 that formed the European Union, to the agreement that establishment of the euro as the single currency in 1999…
European nations have been moving toward a “greater Europe” for the past 60 years.
Thus, the euro, as I have said in The Gorrie Details before, is much more of a political expression—or aspiration—than it is an economic one.
At this point in time, with the PIIGS nations in various states of economic decay, no one is going to make the argument that a single currency in Europe makes sound economic sense, because it doesn’t.
At least, not in its current form and not with its current master.
But that begs the question: “Is there a way to save the euro and keep Greece in the Eurozone?”
Because as the world has seen, the structure of the Eurozone today has allowed the poor nations to borrow without limits until their debts have become so great that the entire Eurozone economy is on the verge of collapse.
So those facile lending and borrowing practices would have to go.
But, a Eurozone led by Germany is not a great idea, either. History argues against German hegemony in Europe, whether political or economic, but that is just where Germany and the Eurozone find themselves today.
Germany is the only economy in the Eurozone that is not in recession and represents not only 30% of the Eurozone economy, but is also the “enforcer” of austerity upon Greece, Spain, and Italy…
And that is why Germany is isolated in the Eurozone…
Because it is qualitatively different from every other Eurozone member...even its usually reliable partner, France.
Because Germany’s isolation has become especially acute since France elected a new socialist president…
Who also happens to be against the austerity plan that Germany has, up to now, favored.
The message of austerity that Germany has sent to the rest of the Eurozone is, “You must become more like us.”
And quite frankly, that’s a message that doesn’t sit well with Greeks, Italians, or Spaniards, not to mention the French.
Which brings us to the question, “Will austerity in the Eurozone continue…or will they go they way of the US and print money to stimulate growth?”
Without a French austerity ally, and with the assertion ahead of the European Union Summit meeting by German Finance Minister Schaeuble that Germany will do whatever it takes to keep Greece in the Eurozone…
We may soon see a very dramatic turn of events. Austerity may be abandoned in favor of stimulus at the last minute to keep Greece in the Eurozone…
But what will happen after a Eurozone stimulus works as fantastic as it has in the US?
Well, that’s a crisis for another day.
And those are…The Gorrie Details.