Crisis. By demanding a debt reduction and promise a frenzy of public spending, the Greek prime minister has launched the biggest challenge euro
It was in Greece where he began this, the Apparently eternal euro crisis more than five years ago, so it is suitable classically Greece where the outcome is given now, thanks to the great electoral victory of populist left-wing Syriza led by Alexis Tsipras on January 25.
By demanding a reduction in Greece’s debt and promise a frenzy of public spending, Tsipras has launched the biggest challenge yet to the single currency in Europe; and, therefore, the Chancellor of Germany, Angela Merkel, who has traced the path of austerity for the continent.
Much is at stake. Although everyone, including Tsipras, insist they want Greece to stay in the euro, there is now a clear threat of a call “Grexit ‘(a pun on the name of the country and the word” exit “in English).
In 2011-2012, Merkel hesitated, but then decided to support the Greeks to keep within the single currency. I did not want to be blamed Germany for another European mess, and both creditors and debtors North South were nervous about the consequences of a chaotic Greek exit for European banks and economies.
fear blackmail
This time, the odds have changed. A Grexit seem more the fault of the Greeks, Europe’s economy is stronger and 80 percent of Greece’s debt is held by other governments and agencies.
Above all, politics is different. The Dutch and Finns, as the Germans want Greece to fulfill the promises he made when she was rescued twice. In southern Europe, the centrist governments fear that a successful Greek blackmail boost their voters to their own populist opposition parties, as we of Spain.
All could become a disaster. However, there are three possible outcomes: the good, the disastrous and an agreement to pass the time. The history of the euro has always been defer difficult decisions, but now the battle revolves around politics, not economics, and the agreement may be much more difficult.
Tantalizingly, there is a good solution at hand for Greece and Europe. Tsipras has realized two things well and completely wrong. You are correct that the austerity of Europe has been excessive. Merkel policies are strangling the economy of the continent and led to deflation. The late launch of quantitative easing by the European Central Bank admits that.
Socialism or reform
Tsipras also right that Greece’s debt, which has risen from 109 percent to a whopping 175 percent of GDP over the past six years, despite tax increases and spending cuts, is priceless. Greece should be put into a forgiveness program, as an African country bankrupt.
However, Tsipras is wrong to abandon the reform in his country. Their plans to rehire 12,000 public sector employees, leaving privatization and introduce a huge increase in the minimum wage desbaratarían all hard-won gains in competitiveness Greece
Hence the obvious solution. Make Tsipras discard its crazy socialism and adheres to structural reforms in return for debt relief, either postponing the maturity of Greek debt further future or, even better, reducing its nominal value. Tsipras could unleash his leftist forward disintegrating comfortable oligopolies protected from Greece and tackling corruption.
The combination of a macroeconomic relaxation with a microeconomic structural reforms even offer a model for other countries, such as Italy and even France.
harmful effects
That is a logical sleep until you wake up and remember that Tsipras probably a crazy leftist and Merkel hardly can accept existing plans for quantitative easing. Hence the second disastrous result.. One Grexit
The optimists are right that would be less painful now than in 2012, but still cause damage
In Greece, leading to failed banks, controls onerous capital, more loss of income, an even higher unemployment rate of 25 percent today and the likely departure of the European Union.
The effects of a Grexit in the rest of Europe would also be hard. Immediately trigger doubts whether Portugal, Spain and even Italy could or should stay in Europe. The new protections euro – banking union and fund redemptions. – Have not been tested, to put it politely
The most likely answer, therefore, is a temporary avoidance, but is unlikely to last long. If Tsipras not get a debt relief, then you will lose all credibility with Greek voters. Even when I get only marginal improvements in the position of Greece, however, other countries will be inclined to resist.
Several problems
Any change in the terms of bailouts will have to be voted on in some national parliaments, including Finland. If approved, voters in countries like Portugal and Spain would claim to their own austerity programs. Worse, populist right and left in France and Italy, which are not only against austerity but also from membership of their countries to the euro, would be strengthened.
There are technical problems in any circumvention. The ECB insists he can not provide emergency liquidity to banks in Greece or buy its bonds unless the government Tsipras has an agreement with its creditors, so it is likely that any impasse triggered a large withdrawal in Greek banks. By extending maturities could avoid some of this; but that may be too little for too Tsipras and Merkel.
In the end, then, Greece will likely force Europe to make some tough decisions. Hopefully, it will be raised to positive results in the above lines.
The deception of Greek voters and German stubbornness
Future • Voters Greeks may be living in delusion, if you think that the prime minister of that country, Alexis Tsipras, can fulfill what he says, but the Germans also have to analyze the consequences of their obstinacy. Five years after the launch of the euro crisis, the southern countries of the euro area still stuck with a growth of almost zero and fantastically high unemployment.
Deflation is being established, so that debt burdens increase despite fiscal austerity. When policies are giving such bad results, a rebellion by Greek voters was predictable and understandable.
If Merkel continues to oppose all efforts to boost growth and banish deflation in the euro area will condemn Europe to a lost decade even more debilitating than Japan in the 90s That surely trigger a larger than Greece, across Europe populist backlash.
It is difficult to see how he could survive the single currency under such circumstances. If it does not, the biggest loser would be Germany itself.
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