If you’ve always fancied a holiday home in Greece, now might be a good time to start making a wish-list.
If talks between the Greeks and the Germans keep going as well as yesterday’s went (it broke down in ‘acrimony’, apparently), you could soon be able to buy one at a chunky discount.
How much? About 40%-odd.
That’s if economists’ estimates of how far the drachma 2.0 would fall against the euro upon its introduction are correct.
The path of least resistance might lead to the exit door
When I’m trying to figure out what decision a politician (or anyone else for that matter – including me) is likely to make, I look for one thing. The path of least resistance.
Problem is, it’s not always easy to work out exactly where that path lies.
Greece and the rest of Europe had another angry meeting yesterday. Basically, Europe says it’s willing to give Greece an extension on its bailout terms and ease up on some reforms – but it ultimately needs to stick to the existing bailout programme.
But Greece says this is a major sticking point – in the words of finance minister Yanis Varoufakis: “We do not believe it is a programme that can be successfully completed”.
In other words, the Greeks are saying that the days of ‘extend and pretend’ need to end. Which seems sensible. So you’d think the rest of Europe could recognise this, back down a bit and give Syriza some concessions. What could be easier than that?
However, it’s not that easy. Because that’ll just create a headache further down the road. There are already rumblings of revolution in other countries.
In Spain, Podemos – the rough equivalent of Syriza – is doing extremely well in the polls. Even in well-behaved Portugal, a cross-party group of worthies has written to the prime minister, urging him to take a less unforgiving stance on Greece (he reckons they should knuckle down and pay the debt, as Portugal has at least attempted to do).
So if Europe doesn’t want to trigger a domino effect, it has to show that voting for radical parties doesn’t pay. You’re in the eurozone now. You won’t get away with not paying your debt, just because you vote for a leader that promises to renegotiate it away. What do you think this is, a democracy?
Joking aside, this is about the future vision of the eurozone in a very real way.
As one senior German official put it to the FT: “If we go deeper into the [debt] discount debate, there will be no more reforms in Europe. There will be joyful celebrations in the Elysée and probably in Rome, too, if we go down this path.”
In short, if you let Greece off the hook today, the next day you’ve got Spain chapping at the door, never mind Portugal. Then Italy. Then France. Not necessarily in that order.
As for Greece, Syriza were voted in to change things and shake everything up. They have to extract some serious concessions from these talks. Or they have to throw the chessboard up in the air. There is no middle ground that will satisfy their supporters, or the more hard left sections of the party.
It may sound mad, but from the point of view of domestic politics, a eurozone exit with head held high is better than a perception of backing down to the Germans.
It’s all about saving face and trying to draw a line under the ongoing Greek problem. And when you think about it that way, a compromise would be nice. But a Greek exit also ticks all the boxes, and might end up being easier – assuming that it doesn’t turn into a Lehman moment.
How might a Grexit pan out?
In the background, there is some geopolitical unpleasantness around all this. If Greece feels that it’s been ejected from the eurozone, how’s it going to feel about the rest of Europe?
Vladimir Putin must be feeling cheerful. He’s turned Ukraine back into a chaotic buffer state between him and the West. Now he’s got the chance to play games with Greece as well.
But I can’t see that entering anyone’s calculations – not yet anyway.
If you’d like to see how a detailed outline on how a ‘Grexit’ might pan out, Capital Economics very kindly allowed us to publish their estimated exit strategy and timetable.
We also looked at ways to hunker down in case a Grexit turns nasty in the latest issue of MoneyWeek magazine, out just now. If you’re not already a subscriber, you can get your first four issues free here.
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