Τετάρτη, Μαΐου 09, 2012

Time for Greece and the Euro to Part Ways?

Alexis Tsipras, head of the Radical Left Coalition, SyrizaKostas Tsironis/Associated PressAlexis Tsipras, head of the Radical Left Coalition, Syriza
For months, we have been asking the same questions: should Greece and the Euro go their separate ways? Are there just too many hurt feelings? Was the relationship based on too many lies from the start? Despite everyone doing their best to work through the issues, are there irreconcilable differences?
At Rendezvous, we asked those questions even when the world seemed to be rejoicing at the bailout deal between Athens and its troika of financiers.
“The coalition government has to survive the growing rage of the streets. And any new government has to accept the same cuts” was potential pitfall number three, we wrote on February 9.
Now, with the political party that came in second in Sunday’s elections seeking to form a coalition government, after the first-place finisher failed, and declaring the bailout deal “null,” we ask again: do you think it’s time to put this relationship out of its misery?
What some people saw as unimaginable a short time ago — but notRendezvous readers — is now seen as having a better that 50/50 chance of coming to pass.
As my colleagues Nick Kulish and Liz Alderman report, “Germany’s devotion to the euro and the European Union runs extremely deep and cuts across the political spectrum. But the frustration with Greece here is undeniable. There is a growing conviction that it is up to Greece to follow through on its commitments, that Europe is done negotiating.
A trader pauses as he works on the floor of the New York Stock Exchange on May 8.Justin Sullivan/Getty ImagesA trader pauses as he works on the floor of the New York Stock Exchange on May 8.
‘Germans are now predominantly of the opinion that they would be better off if Greece left the euro zone,’ said Carsten Hefeker, a professor of economics and an expert on the euro at the University of Siegen. ‘If the country really is continuing on the path they are taking now, it would be hard to justify keeping them in. How do you deal with a country that says we don’t want to keep any of the commitments we have made?’ ”
Back in February The Financial Times told us that Citi’s chief economist Willem Buiter and colleague Ebrahim Rahbari had coined the term Grexit, for “Greece exit” from the eurozone. At the time, the analysts increased their estimation of the odds of Greece leaving the eurozone from their previous 25-30 percent to over 50 percent.
On Tuesday, John Taylor, the head of FX Concepts LLC, a New York hedge fund, told Bloomberg Television, “Greece will probably leave the euro as soon as next month.”
Reuters reported that German politicians were saying there can be no change to the terms of Greece’s bailout plan:
“The agreements must be respected. I don’t think we can or should renegotiate,” said Martin Schulz, a German politician and president of the European Parliament, on a visit to Berlin.
Gerda Hasselfeldt, a senior member of the Bavarian Christian Social Union, sister party to Chancellor Angela Merkel’s Christian Democratic Union, echoed Schulz in warning Greece against any backsliding.
“Our position is unchanged. Aid can only flow if the conditions are met,” Hasselfeldt told reporters.
Today, Alexis Tsipras, the leader of the Coalition of the Radical Left, is supposed to meet the leaders of Greece’s mainstream parties to try to form a coalition government, but Reuters calls the effort “doomed.”
As my colleagues Rachel Donadio and Niki Kitsantonis report, “to the consternation of European leaders and financial markets, Mr. Tsipras held true to his party’s platform of opposing the loan agreement that Greece made with its so-called troika of foreign lenders: the European Commission, the European Central Bank and the International Monetary Fund. He called on the two dominant parties that backed the bailout, the Socialists, led by Evangelos Venizelos, and New Democracy, to revoke the deal.
He said ominously, for European leaders hoping for a quick resolution, ‘The popular verdict clearly renders the bailout deal null.’ ”
The main pressure points — the moments of truth, as observers around the world are increasingly calling them — will come when Greece has to pay some bondholders on May 17 and when the government will effectively run out of money to pay salaries, bills and benefits come July.
If no party is able to form a government by then, as has been the case since Sunday’s elections, then the European Central Bank could hold its nose and give Greece just enough money to pay its bills until it forms a government that agrees to honor the terms of the bailout plan. Or the Europeans could agree to renegotiate the bailout rather than risk the unraveling of the euro bloc.
Or, Europe could let Greece default on its debts, leave the euro and start looking for a lot of used printing presses. The scary thing about that option though, while temporarily deeply fulfilling perhaps to Greeks angry over German lecturing and to Germans angry over Greek profligacy, is that no one knows what the ripple effects will be.
Nonetheless, outside Greece, Nick and Liz report, many people are readying for the once unimaginable:
“Preparations are quietly being made for the contingency if Greece decides that it’s better off with its own currency,” said Heribert Dieter, an expert on international financial markets at the German Institute for International and Security Affairs.
Most Greek debt is now held by the troika, easing the threat to the banks, and rescue mechanisms are in place to ease speculative pressure on other members of the euro zone. “Those measures could be used temporarily to take speculative pressure away from Italy and Spain,” Mr. Dieter said. “These are the two candidates that may need to be sheltered for weeks, maybe months, but not years.”
So, what do you say, is it time to end this marriage? Or are the unknowable risks — for Greece, but especially for Europe, the euro and the fragile global economy — too great? Would Spain and Portugal be able to remain in the euro if Greece leaves, or will the markets enforce a “Devil take the hindmost,” picking off the weakest members of the remaining herd, one by one?

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