The final death throes of the euro
The euro crisis is entering its final stages. Economic pain is now interacting with political resistance to produce intense financial pressure. I expect Greece to leave the euro – and perhaps very soon.
By Roger Bootle
13 May 2012
It could happen voluntarily, but both the Greek people and Greek politicians are still clinging to the idea that they can put an end to austerity yet still stay in the euro. In order to try to achieve that, a new government may call the eurozone’s bluff.
At that point, the other eurozone members would face an awkward choice. Doubtless there would be voices in favour of providing the money, willy nilly. That might well be the French position. But if the eurozone gives way on this, what chance would there be of painful austerity being continued, not just in Greece but also in Portugal, Spain, Italy and Ireland? The northern countries would face the prospect of pouring money into a bottomless pit.
Accordingly, it is likely, I think, that they would say: “It’s your choice: we want you to stay in the euro (which isn’t true yet has to be said) but you cannot do so on your own terms.”
If the Greeks did not yield, then they would be out. For if they don’t get the money, it isn’t simply a matter of not being able to honour their debt obligations (i.e. defaulting); they would not be able to meet their obligations to pay wages and pensions. Moreover, if they could not get ECB funding for their banks, then their banking system would face implosion. At that stage, the only way out would be to move to a system where they can get funding from their own central bank – in other words, to come out of the euro.
What then? I would expect serious efforts to be expended to hold the rest of the eurozone together. Firewalls would be extended; bailout mechanisms would be increased; solemn commitments would be entered into. I wouldn’t even be surprised to see Germany agree to some of François Hollande’s wishes. For a time, the euro crisis might subside, with the markets deciding that the remaining members would indeed stick together. And they might. But I doubt it.