The eurozone and Greece are more than three years ago in a complicated negotiation that must come to an end in the coming days. That outcome may have two possible endings, one where Greece remains in the eurozone and another where the rules for an orderly exit are set.
Although negotiations have been complicated and seem to have reached an impasse, the Most specialists and markets still committed to a solution that will keep Greece in the eurozone.
What happened in Greece in recent years has shown that the plan to revive the Greek economy within the framework a single currency and the conditions imposed by the eurozone were an illusion.
The bet was that Greece could improve its debt ratio to GDP, therefore an increase in economic activity -product focused structural changes to improve the productivity of the economy as a reduction in the product of some privatizations debt. However, a fiscal adjustment of this magnitude without a flexible exchange rate as adjusting valve has just sentenced to Greece to depression.
Although in theory Greece could be better leaving the eurozone and adopting its own currency allowing you to perform fiscal adjustment in a framework of flexible exchange rate, using the depreciation of its currency as adjusting valve, encouraging the competitiveness of their exports of goods and services (including tourism) and promote economic growth, this solution clearly bring side effects Lehman Brothers style.
The decision not to give in to Greek demands and allow the exit of Greece from the eurozone would qualify as one of these decisions, which at first may seem good, but have unintended consequences could be devastating not only for Greece but for the European Union and the global economy.
The adoption of the euro as a common currency is, by design, irreversible and there is no mechanism in place that allow neglect. However, the abandonment of the euro, followed by the reintroduction of the drachma as the local currency in Greece would trigger a wave of speculation about a similar event in Italy, Portugal or Spain.
Although none of these countries leave the euro The mere possibility that such abandonment would create the perception feasible that a euro deposited in banks in these countries have a less than a euro deposited in banks of the stronger countries like Germany value. This situation is likely to cause a run on deposits in banks located in the weaker economies, causing absolute chaos. The worst part is that the financial authorities, including the ECB, could do little to stabilize the financial sector in this scenario as the ECB would lose its power to lender of last resort for countries to leave the euro.
According to experts, the only way that Greece could leave the euro without devastating consequences would be through full federalization of the rest of the European Union and the total guarantee that the euro is irreversible in other member countries. Given this scenario, the eurozone leaders seem to have no choice but to continue to support Greece, whatever the cost, rather than allow its exit from the euro or bankruptcy.
The Greek leaders know this and that is why we are stretching the league maximum for the largest possible number of concessions in these negotiations. However, at the end of the day and for the good of all, pragmatism must win and the leaders of the eurozone and Greece must agree to keep the Greek country within the euro zone, otherwise the consequences would be of prognostic reserved .
No comments:
Post a Comment