Grexit, The Political And Economic Risks

Grexit, The Political And Economic Risks

A Grexit will represent a major political defeat for European leaders. For the last 5 years, they have tried to keep Greece in the Eurozone at any price. If Greece leaves the Euro, there is the danger that it could begin to orient itself more toward Russia or China, both of whom have show major interest.

Grexit from the Eurozone would be an incalculable economic risk for Greece, one which could pay political dividends. The reverse is true for the Eurozone.

Europe has been anything but unified.

European Commission President Jean-Claude Juncker has sought to find a compromise privately, German Finance Minister Schäuble has acted as though his preference would be for Greece to leave the Eurozone. Sigmar Gabriel, head of Merkel’s coalition partner, the Social Democratic Party, has expressed his opposition.

The best option is not Grexit but is finding a compromise.

After the difficult structural reforms Greece has introduced, it would be difficult for Greece to confront the pain of a currency reform. The Eurozone has no interest in allowing Athens special rights that no other country could claim. A deal is still possible, but the longer the negotiations last, the more doubtful it becomes if both sides are not willing to make the sacrifices necessary.

Those leading the negotiations have made it clear that they do not have much wiggle room.

“Greece can no longer fulfill the demands of the program,” PM Tsipras says. “That is why it must be modified.”

Chancellor Angela Merkel, for her part, said: “Solidarity and exertion are two sides of the same coin.”

Stay tuned…


Paul Ebeling

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