Monday, February 09, 2015

If you leave

As usual, I've been going to Zero Hedge for all my information on the Grexit:

UK begins preparations for Grexit
Morgan Stanley Says Grexit Would Send EURUSD Crashing To 0.90
If Greece Exits, Here Is What Happens

This is an enormous game of chicken but I don't see how this doesn't end worse for Greece.  If they leave the EU, they'll have to revive the drachma, which will be as worthless as Zimbabwe's dollars.  I think this paragraph says a lot:
So who will prevail: those who say a Grexit is bullish for the Euro as it removes tail risk and makes the Eurozone even stronger, or those who say a Grexit will lead to a plunge (controlled of course) in the Euro as the contagion risk never really went away, and now everyone will look to Italy and France, where anti-Europe movements have continued to rise from strength to strength, but nowhere more so than in Spain, where the Syriza peer, Podemos, is now tracking at top spot in polls.
So now Spain is looking for the easy-peasy-Syriza way out of their debts.  What a mess.

1 comment:

How to Drain Your Drachma said...

This is an enormous game of chicken but I don't see how this doesn't end worse for Greece.

The full question is, "End worse for Greece in 2016, or end worse in 2036?" Because those could be two very different outcomes.

Argentina ended its currency peg to the dollar 15 years ago, defaulted, crashed into recession, then rebounded. Argentina is plugging along now: 2013 was up, 2014 was down. Greece will take the same initial pounding if it ditches the Euro for Drachma Jr. But it would also gain the immediate opportunity to deflate its currency, and to fund public investment and employment schemes, neither of which it can do under the EU’s austerity thumb.

However, an Argentine-like rebound is NOT assured; mining and oil are more lucrative than shipping and tourism. Either way, the just-elected government would surely be tossed out on its ear while the nation's punishment plays out.

There's a split-the-baby idea out there in which Greece leaves the EU but gets to keep the Euro. Uh huh, sure. A more plausible compromise is that Greece will have its repayment schedule extended by a decade or five. The EU is also likely to slightly loosen the strict surplus/debt/GDP requirements that Greece accepted as a condition of its last round of loans. This would give both sides the wiggle room to say, "See, our principles have won the day."