The unthinkable Grexit

Back in 2012 I was blogging about The Greek Tragedy. The ongoing saga of Greece is compelling viewing in exactly the same way that motorists can’t help slowing down to gawk at a crash. I don’t usually like to slow down to look at a crash, but I do like to thank my lucky stars that I’m not stood at the side of the road exchanging numbers, or in an ambulance being carted off in shock, or worse, to A&E.

There can be no doubt that the Greek economy is on life support. Since Syriza claimed election victory – though it is in coalition – it has been negotiating with three of the most powerful institutions in the world. The European Commission, the European Central Bank, and the International Monetary Fund.

Like harpies straight out of Greek mythology, The Three Institutions Formerly Known As Troika have been blowing Greece down a course that has so far led to stunted growth, huge youth unemployment, and, eventually the snap elections that saw Syriza rise to power on a very clear anti-austerity platform.

Syriza, claiming – rightly – that they have a mandate to stop implementing further austerity measures, have taken a tough line in negotiations. Unfortunately, so have the institutions with which they are negotiating.

If the austerity measures that have been imposed upon Greece had worked then there would be no need for these negotiations. That language being used has become deeply emotional is a signal that negotiations are being led by the heart, at least as much as they are being led by the mind.

The insistence of the EC, ECB and IMF of demanding further and deeper cuts to Greek support systems gives off an air of obtuseness. On the one hand these organisations talk about being partners, and on the other they refuse to countenance the idea that their policies are bringing Greece to its knees.

A wide range of economists agree that there must be some debt relief for Greece. I don’t disagree that the government of Alexis Tsipras is in such a dire position that it must implement some reforms – on pensions for instance – but those reforms can not be very severe up front and must be delivered gradually otherwise the additional shock to the system will probably be to much for Greek civil society to bear.

The risk of ‘Grexit’ is surely too much for Europe, and the Euro itself to countenance. It will set a precedent, the world will know that the political leaders of Europe are willing to throw economic partners under the bus. The whole purpose of the economic union – strength in unity – will be undermined because it will have been shown that the Euro unity lasts only in the good times. Countries falling on hard times will be entitled to do a cold, hard, cost-benefit analysis before even entering into negotiations around debt. Maybe more countries will reckon that leaving the Euro is the best course of action to take in the future if Greece becomes the first country to fall out of the Euro.

The intransigence of the politicians at the heart of Europe does not bode well for the UK either. David Cameron is beginning to negotiate a better deal for the UK in Europe. He’s talking with the same people that are across the table from the Greeks. The fact that they appear so intransigent, that they are so willing to take negotiations to the wire, that they are willing to stand steadfastly against the mandate of the Greeks and stick to their austerity policies will be music to the ears of every anti-EU pundit in the UK.

A Greek default will affect us all. The globalised economy is tightly knit and talks of protective economic ‘firewalls‘ have not appeased the markets.

Greece cannot afford to service it’s debts. But the EU cannot afford to let Greece default. That would not only be an economic nightmare, but also a nuclear-grade political explosion.

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