Talk that started in 2011 about Greece leaving the EU has started up again.
When Greece started talking about leaving, many countries in the EU, particularly Germany, were extremely nervous. It wasn’t so much Greece leaving the EU, it was Greece leaving the Eurozone (Using the Euro as a currency.)
Greece has not been very anxious about continuing with an austerity program to get their financial house in order. That program has caused a rise in unemployment, a cut in government benefits and a dramatic increase in popular discontent.
The austerity program was part of a deal Greece made with the EU to get additional credit to keep the country afloat. But as austerity began to make an impact, people began to feel that it would be better to go it alone, rather than stay under a system Greeks belief is draconian.
A Bankrupt Drachma?
If Greece does leave the EU, the next step for them is bankruptcy. Countries can’t actually go bankrupt, they just repudiate their debt. If Greece does leave the EU, they would convert back to the Greek drachma, a currency they have been using for centuries. With the drachma, the Greek government could manipulate their monetary system as they see fit.
The problem they would have is that the loans they took out would still be in Euros. Greece would not be possibly able to pay back their Euro loans in drachma since the currency would be devalued by the EU due to their financial condition and be virtually worthless.
Germany Left Holding the Bag
Germany, who carries the bulk of the debt would take a big hit if it would happen.
In 2012, the problem of a Greek departure was solved with a modest amount of debt being written off and the Greeks knuckling down to year after year of grinding recession.
Since then, the financial markets have stopped worrying about a Greek exit from the euro — the so-called Grexit. However, the Grexit has not been cancelled, just postponed.
It was not possible for Greece to get out of the EU in 2012 or 2013. In 2015, however, a trade and budget surplus will mean the country can leave if it wants to. The locks will have been taken off the doors — and it would be rash to assume Greece won’t walk out.
If Greece actually follows through this time, Germany believes euro zone could cope with it.
Both Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble believe the euro zone has implemented enough reforms since the height of the regional crisis in 2012 to make a potential Greece exit manageable, according to Der Spiegel.
“The danger of contagion is limited because Portugal and Ireland are considered rehabilitated,” the weekly news magazine quoted one government source saying.
According to the report, the German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsipras wins an election set for Jan. 25.
Let the Good Times Roll.
The Greek election was called after lawmakers failed to elect a president last month. It pits Prime Minister Antonis Samaras’ conservative New Democracy party, which imposed unpopular budget cuts under Greece’s bailout deal, against Tsipras’ Syriza, who want to cancel austerity measures and a chunk of Greek debt.
German Finance Minister Schaeuble has already warned Greece against straying from a path of economic reform, saying any new government would be held to the pledges made by the current Samaras government.
How this plays into KI Strategic Trends is that a Greek exit would inevitably result in a economically weakened EU. That economic weakness would result in political weakness.
A weakened Europe is less of a threat to Russia, which allows Russia to concentrate on its Southern flank — Turkey, Syria … and Israel.