Greece will not exit the Euro – Groundless threats and speculation

2012-01-29

This post is archived. Opinions expressed herein may no longer represent my current views. Links, images and other media might not work as intended. Information may be out of date. For further questions contact me.

Greece will never exit the euro nor will it ever be forced out. Image source: Herald Sun

The negotiations between Greece and its private creditors for the restructuring of the sovereign debt are continuing and are expected to be successful within the next few days, even though “success” is a very relative term when speaking of the worst economic crisis in the history of the Greek state (a history very rich in defaults and crises). Personally I have always been against the whole process, the so-called PSI programme, since I believe that it does nothing to make the country’s national debt economically and socially sustainable. As if the PSI was not enough, another far worse proposal was published in the Financial Times, which asks for “Absolute priority to debt service” and “Transfer of national budgetary sovereignty”.

If we accept that what FT published is actually on the (secret) agenda of some political powers, then three are the logical explanations I can come up with at this point:

1. this maximalism is part of a psychological war, within the context of tough bargaining, in order to make the current draconian measures acceptable in the Greek interior.
2. it is propagated by certain interest groups who wish to speculate against Greece by spreading rumors of an exit from the eurozone
3. it is indirectly addressed to other peoples who are protesting against harsh austerity, by “making an example” of Greece

For now, since this is just a publication of an (esteemed) newspaper I shall not expand on that preposterous proposal for it might never become open and official. Instead I shall attack the speculation that it has already fueled about a default of Greece in March, followed by an exit from the Eurozone (for the economic implications see Analysis: Exit of Greece from the euro is collective suicide).

Greece cannot be forced out of the eurozone nor can it voluntarily exit the eurozone. There is no legal mechanism, no matter the circumstances that gives power to other member-states to decide on such an issue. In fact the Lisbon Treaty is so restrictive on this matter that not even Greece itself is allowed to exit the eurozone, except if it wishes to exit the European Union altogether (under Article 50), which is a wholly different issue. Greece will never consider the option of exiting the EU as a whole, since that would be a debacle for the whole country in the extremely hard situation it finds itself.

Since Greece cannot be forced out of the euro nor can it leave voluntarily and for as long as the exit from the EU is completely utopian, then why is all this being discussed? Why do we read all the time lengthy articles about the “possibility” of a forceful euro exit, or why do we hear several politicians, market speculators and opinion makers speak about the matter?

The answer to these and other relevant questions is rather simple. These are all groundless threats which are very beneficial for those who express them. Let me be clear:

• Populist politicians exist everywhere and are perfectly willing to repeat whatever nonsense might make them more popular. In some countries Greece was depicted as the “profligate child” of the Eurozone – as the country which is largely responsible from the situation in the whole Euro area – even though this is completely detached from reality as it omits the structural flaws of the euro itself, the malignancies of the European banking sector in conjunction with the maladministration of EU policies and trade barriers. Nevertheless these politicians need to show that they listen to their voters by showing their “iron fist”, which can be used “to kick the Greeks out of the euro”.
• This story is very profitable for the established media. It provides an infinite source of ideas that are “analyzed” in articles or tv/radio shows. In addition all the discussion around this myth creates gossip and interest for more information on the matter. In short it creates a cycle that brings in a lot of cash to established mass media.
• Speculators also love such kind of stories. Of course they never say that they are willing to make a small little earning for their selves, but they put forward their expertise to propose what is “good” for Greece and the eurozone as a whole.
• Academics and other economic “guru” are also sufficed by the story. They use the “option” of the exit from the euro, to justify their otherwise inane theories and outdated beliefs.

I could go down the line to demonstrate how many interests are involved in the cultivation of the Euro-exit myth, but I believe my point had been made clear. We are dealing with groundless threats, wild delusions and unbridled speculation. Greece will not exit the euro for as long as it needs to exit the whole EU. Nor will there ever be such a forceful exit because it is legally impossible, but would also constitute a very bad precedent, eventually opening up the Pandora’s Box for the collapse of the eurozone.