Wednesday 24 June 2015

Time for the final Grexit


Grexit, Grisis, Great news for eurozone; whatever your want to call it the time for a decision on Greece's future is rapidly approaching.
At time of writing there are still some hopes that a deal can be struck, however, even these are slim. The concessions proposed by the Greek government may buy them some time with their creditors but it will only be  a stop gap measure and likely to anger their own electorate.
Having campaigned on a platform of standing up to the European Union, preserving pension rights and combating austerity Greek Prime Minister Alex Tsipras and his ruling Syriza party will find it uncomfortable to explain why they are now making such a dramatic U-turn. On Tuesday it looked questionable whether he would be able to get the support in parliament to follow through on any agreement which included a concession on pensions making the plans even more unrealistic.
While the  proposal to combat Greece's mounting  debt has been greeted with cautious approval by some, including EU President Jean-Claude Juncker, others, including head of the International Monetary Fund Christine Lagarde and European Central Bank President Mario Draghi, are not even this optimistic of a solution.
Greece is hedging its bets on the idea that other eurozone countries will see Grexit as too much of a risk and therefore so long as they put on a good show of trying to compromise they will they will get what they want. Even if a bailout is agreed upon this time though it will only be a temporary measure. Unless Greece dramatically cuts its spending, raises the retirement age and curbs its more excessive tendencies then this will be just one round of a never ending fiscal game between the eurozone nations.
The issue for Germany et al though is  that having shown that they will bend over backwards to keep Greece in the zone they will have lost a key bargaining chip and created an inevitability for any future negotiations.
At this stage it could prove to be a greater risk to actually keep Greece in the eurozone. What critics of this opinion are quick to point out is that the zone was created with the specific concept that once joined it could not be left. To allow for Grexit would therefore create a dilemma for the bloc as member nations face an uncertain future, with any member potentially leaving and avoiding its responsibilities should the going get tough, examples of Spain and Portugal are thrown around considerably with this argument.
Such future exits would undoubtedly be painful and costly for the zone in the short term. If the eurozone is to survive in any format however this will be its only chance. By reducing the number of nations the remaining members will be able to create a more secure sustainable regime likely to increase productivity.
It would also not necessarily mean to collapse of the financial systems of leaving countries and the subsequent decent into anarchy and autocracy which has been predicted. The outflow from a prosperous regenerated eurozone is likely to bleed into these countries through trade and treaties, which with their new found ability to manage their own capital and current accounts more effectively is likely to help boost economies over the long term.
On a practical level the argument that should countries be allowed to leave the eurozone it would create some form of mass exodus must surely if true, which is unlikely, prove a decisive reason why it should be allowed. An economic regime which everyone wants to leave by definition has been proven to have failed and should be discarded in favour of a more effective one.
Without a real threat of exit there is no genuine means by which eurozone members can force others to acquiescence. Any negotiations will therefore prove pointless with a predetermined policy of paying an inevitability. An exit will without any question be painful, the rebuilding costly and many would sufferin the short term  Failing to allow it though would be catastrophic in the long run with the long term effects precipating a global financial crash to make the last decade seem a minor inconvenience.

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