The situation around Greece is tense and confused, with a rushed referendum over a sibylline text that asks the Greek to vote for death by strangling or by drowning while
That is unfortunately not likely to happen as other European leaders, exasperated by the drip-water “yes/no” talks with the Greek government, have hunkered down in their bunkers and await the fall-out of a possible Grexit.
However, they cannot really force Greece out of the euro. A Grexit has to be voluntary and the Greek government does not want to leave the euro -- it wants to stay in the euro but at its terms.
The Greek debt, irrespective of how and why they were built up and who is to blame for that, will not just go away and Greece will – euro in or out – need a debt restructuring to the tune of tens of billions of euros.
The other Eurozone countries, divided in opinion about whether such a “haircut” is acceptable, agree on one thing – Greece has to say at least “please” and not argue that Europe “owes” Greece a debt deal, or that Germany still owes Greece billions in war damage reparations.
Both the German-led hawks and the Greek side are however overlooking something rather crucial – the Eurozone, including Germany, needs weaker member states. In a way, the Greek predicament is to a certain degree beneficial to the euro and Europe.
The Eurozone countries should help get Greece back on its feet, without giving it too much tonic.
This is because the foreign exchange value of the euro, versus the dollar, Swiss franc, pound, crowns, Yen and Yuan, reflects the state of the Eurozone economy.
If all of the Eurozone had strong economies, small budget deficits and manageable state debts, the euro would have been a very strong currency indeed.
That may please some myopic monetarists that see a strong currency as a badge of honor for fiscal and financial rectitude, but it would be a disaster for European industry and employment.
A strong euro would make exports more expensive and imports cheaper; therefore European products would be less competitive on the world market versus other products while foreign products would conquer European markets. This would reduce employment, depress consumption and weaken the economy and currency.
So in a way, the Eurozone and Germany should be pleased that Greece and some other weaker brethren in the Eurozone are weighing on the value of the euro as this allows German carmakers to continue to sell vehicles all over the world despite relatively high labor costs. While the Eurozone is not an "optimal currency block" because of divergent underlying economies, this theoretical disqualification is in fact a beneficial handicap....up to a certain level.
The German Finance Minister, looking at his country’s finances, should not begrudge the Greek for not being as virtuous as the hard-working and eager-saving Germans, but thank the more prolific member states of the Eurozone for their efforts to keep the euro relatively cheap without extra accommodative policies by the European Central Bank (which Germany also does not like).
The Eurozone needs weaker member states such as Greece, Germany should be thankful for those states and Greece does need and may deserve another debt restructuring.
In return, other Eurozone member states could perhaps delay the timetable for their own deficit reduction plans so that the Eurozone will not shrink to a small area around Germany with a very strong currency, stagnating exports but with rich pensioners holidaying in the rest of the continent.
Italy, France, Spain or Portugal -- to name a few -- could so with such an austerity pause and boost domestic consumption via tax cuts or direct spending measures to kick-start their economies and shorten the jobless queues.
But the rushed, risky and perhaps botched Greek referendum of Sunday might already have made this outcome out of reach.
Tsipras has pulled the pin out of the grenade and it can explode, in his face and in that of Europe’s.
A No (Oxi) vote will not solve the situation, it will just harden the positions and lead to further acrimony, social strive and perhaps the Greek will even come to blows with each other in the streets.
A Yes (Nai) does not solve the situation either. The Syriza government would have to resign, there would have to be new elections and in the meantime the debt repayment schedule remains ticking.
But when Greece would be legally bankrupt, there could be a sort of an “administrator” appointed to keep the country afloat for the time needed to get a new Greek government and then a sort of court could decide on how to divide the pain between Greece and its creditors.
It is a nightmare scenario, but it could lead to a solution much quicker than any further prolonged negotiations might have been able to deliver. Because neither Greece nor Germany could move beyond their own red lines, they both failed to recognize that they need each other for their common good and future.
