To leave the euro or not to leave the euro, that is the question
by Julian D. W. Phillips, Gold Seek As we watched the Prime Minister and the Finance Minister of Greece travel though Europe in a failed attempt to re-negotiate the terms of the “Bailout” it received, we find ourselves thinking quite differently to the mainstream commentators. Ours is not a jaundiced view but a realistic one. Pragmatism demands we do so. The prime underlying factors that will be brought into play are the interests of each side. After all, countries don’t have friends they have interests, even with fellow members of the Eurozone. These will dictate the result and likely the tactics on each side. We do not see these as friendly negotiations at all. For Greece the stakes are higher than they are for the E.U. Not Friends, only interests! Cutting through the rhetoric and cordiality we have been saw this week, the interests of each side are very clear.
Ø Greece, while seeing the faults of the past since it joined the Eurozone, feels it has suffered enough punishment with a contraction of its GDP and what is now a perpetual debt crisis. It now believes the bailout has stripped the nation of its dignity. The 25% contraction of GDP together with 50% of its youth unemployed and its skilled workforce leaving to find employment in other countries, Greece is bankrupt with no ability to repay its debt. It has little to lose. The statistics point to growth appearing again, but this is little more than cosmetic, as the damage already done will take generations to take Greece back to where it was. It doesn’t blame the E.U. entirely, which is why the new government will target the graft that has been a feature of Greek society for decades and enforce taxation on its very rich and until now, political classes who have ‘ducked’ paying up so far. Greece has little more to lose as a default on their debt is imminent. They can’t repay the debt even if they wanted to, which they don’t. The election has committed the new government to that position. The question stands, “Is the new Government and the pain it now has, sufficient to take Greece back to the Drachma?” With a new government voted in to clean up this mess and to give it room to recover through either the writing off or re-scheduling and restructuring of its debt, it has the mandate to do what is necessary to achieve this. The two leaders have to be determined to achieve these results for if they aren’t they will commit political suicide and that of their party. This is what they are discussing this weekend. We are reminded of 1919 when Germany itself felt the same when it had un-repayable reparation terms imposed on it at the end of the First World War and the impact it had on Germans then and for the next 25 years. Greece can’t follow that road, but if they feel strongly enough they can exit the euro and potentially the Eurozone! Ø On the other side, Germany and the strong northern members of the E.U. need a weak euro. The southern member states ensure that through their economic weakness they will continue to enjoy a weak and weakening euro. So they would not be happy to see Greece leave the euro or the Eurozone. If Greece did leave it would ensure a major loss of international trade competitiveness, as the price of a strong euro would suck out the competitiveness of German and Northern member states goods, as their prices would jump with the euro. If that were to happen the euro would likely go much higher than its $1.40 peak of last year. No, the interests of the E.U. lie in keeping Greece and other southern member states economically weak, while retaining them in the Eurozone.
If we were able to measure the financial benefits to the strong member States of the E.U. we are in no doubt that the €250 billion in loans to Greece are only a small fraction of the profits gained because the euro has been much weaker than a Deutschemark would have been. Even at current levels the E.C.B. wants to see further falls in the euro exchange rate against global currencies, to stave off imminent deflation. Spain, Italy and France are watching the events riveted to the potential outcome, which could spell the future of the Eurozone, either way. The hoped for integration of Eurozone member states always was a pipedream and a distraction from the real intent of the union of member states. As to the financial union under common rules of behavior the patterns of behavior differed so much before the formation of the E.U. that integration of such differing people was at best a vague hope, no more. Greece joined because of what it could get out of the Eurozone as did Germany and all other members. Austerity has not worked for Greece. It simply brought the country to today, close to leaving the Eurozone as a bad, bankrupt, debtor. Continue Reading>>>