Will the Grexit happen this time?


by Chris Becker

We’re seeing two stories emerge from yet another Greek crisis over the weekend, as the people head to the polls for what is likely to be a lose-lose election outcome.

First, the real occupiers of power in Greece, the Germans, publicly contend that they want the beleagured nation (or is it dominion?) to remain in the eurozone and to pay back its debts. From Ekathimerini:

The German government wants Greece to stay in the euro zone and there are no contingency plans to the contrary, Vice Chancellor Sigmar Gabriel said on Sunday, responding to a media report that Berlin believes the currency union could cope without Greece.

“The goal of the German government, the European Union and even the government in Athens itself is to keep Greece in the euro zone,» Gabriel said in the interview to appear on Monday.

“That’s why we can’t be blackmailed and why we expect the Greece government, no matter who leads it, to abide by the agreements made with the EU,» he said referring to the Jan. 25 Greek election and possible change of government.

I think the Vice Chancellor needs a lesson in capitalism and democracy instead of resorting to language that belittles the latter and reinforces the notion that his country’s banks are really behind this push to “abide”.


As the euro zone’s paymaster, Germany is insisting that Greece must stick to a course of austerity and not backtrack on its bailout commitments – especially as it does not want to open the door for other struggling euro zone members to relax their reform efforts.

Peter Bofinger, one the wisemen council of economic advisers to the German government, warned against Grexit.

“There would be many high risks for the stability of the euro zone with such a step,» he told Welt am Sonntag. “It would let a genie out of the bottle that would be hard to control.”

Indeed – but it was Northern Europe who pushed the magical fairytale of a currency union without a fiscal union onto the South. The South ate the magic sauce of course and are now paying for their extravagances, but it has always been a two way street.

The second notion however, is that their are some contingency plans to get the Greeks out in a “manageable” way, from Bloomberg:

Merkel’s administration sees a potential Greek exit from the euro area as manageable, Der Spiegel reported, citing unidentified government officials in Berlin.

Merkel and Finance Minister Wolfgang Schaeuble both view the shared-currency area as capable of withstanding Greece’s departure, a scenario that would become almost unavoidable if a new government were to renege on spending cuts and fail to service the country’s debt, according to the Hamburg-based magazine.

German Finance Ministry spokesman Martin Jaeger said by phone that he wouldn’t comment on “speculative scenarios.”

The threat of contagion has since diminished, Spiegel cited the government officials as saying. They pointed to the recovery in Ireland and Portugal, two euro nations that sought bailout assistance, as well as the strength of the currency area’s backstop fund and the establishment of a bloc-wide banking union, the magazine reported.

What is freaking out the Germans is a realist and pragmatist in the form of Alexis Tsipras is telling his country, and the world, what needs to happen.

Prime Minister Antonis Samaras used a Jan. 2 speech to warn that victory for the main opposition Syriza party would cause default and Greece’s exit from the 19-member euro region, while Syriza leader Alexis Tsipras said his party would end German-led austerity.

Tsipras, in a speech on Jan. 3, vowed to restructure his nation’s debt and end what he called the “unreasonable and catastrophic” austerity policies and “write down on most of the nominal value of debt, so that it becomes sustainable,” Tsipras said, according to the e-mailed transcript of a speech in Athens.

“That’s what was done for Germany in 1953, it should be done for Greece in 2015.”

The Germans at the ECB are hysterically focusing on the hyperinflation of the 1920’s, and not the countless times that debt has been restructured over history. The current path will not work as even at record low interest rates, the Greek people cannot pay back the €245bn bailout package.

Financial Times columnist Wolfgang Münchau rightly argues that:

the political choice is essentially between the status quo of fiscal austerity and an alternative of negotiated debt default. The economic argument for the second course of action is compelling….but I see no way out for Greece without a debt restructuring. And I don’t see a debt restructuring inside the eurozone.

This year could be the end of the European experiment with three “member”-states, all with severe economic, unemployment and debt problems (but I repeat myself) going to popular elections. Following Greece, will be Spain and Portugal, with the rising anti-Brussels/Germany mood and a return to nationalism mixed with a worrying trend of extremism likely to kick over the crumbling edifice that is the “new Europe”.

My own view is that authoritarian protestations to a “manageable” exit, a Greek exit will be the first of many and for Australian investors, provide downside risk to their correlated share portfolios and any bond exposure and upside risk by selling Euro as fast as possible.

Latest posts by Chris Becker (see all)


  1. stop the stoats

    I wonder if there are any parallels from Ancient Greece that might tell us what will happen next.

    • The fall of Troy and the enslavement of Cassandra and death of Clytemenstra.

      Europe is the story of 2015: Greece, UK elections, German intransigence; European bonds lowest since Black Death ( source AEP) 50% youth unemployment, and so on.

      • Dont forget the Poms have an election this year. If the Greeks look like departing, it would be an ugly look for the EU to have a sizeable possible UKIP (maybe even in coalition with the Tories) presence get up, and the message that would send others (in a continent that doesnt even look like getting its economy growing seriously anytime soon, and has major unemployment problems in Club Med, Eire) could be quite incendiary.

      • I suspect the English tabloids will be more preoccupied with prince Andrew and his young lady friend, rather than economic matters this year.

      • migtronixMEMBER

        So far its reminding one of the Siege of Athens during the second Pelopenessian War. Pestilence, depression, death and political upheaval lasting many years culminating in… well lets just say Athens never again rose from her knees.

  2. Greece leaving is manageable
    Portugal is following will be OK but
    Spain is going to be hard and
    Italy is going to be near impossible with pulling the French out as well.

    • Fragility exposed, voters the weak link

      ‘That idea was always naive, as events in Greece are now illustrating. The weak link in the theory was European politics – and, specifically, the risk that voters would revolt against economic austerity and cast their ballots for “anti-system” parties that reject the European consensus on how to keep the single currency together.
      If that consensus is broken the whole delicate house of cards of debt, bailouts and austerity begins to wobble. And that is what we are seeing in Greece now.’


      • Maybe the weak link is –
        Money printing,
        Poor lending standards
        Zero corporate responsibility.
        The idea of perpetual growth.
        3d1K never look in your own back yard?????

  3. As I have related here before, about this time 3 years ago (while living in Europe/Russia) I spoke with about 20 chief economists/senior honchos from major European banks.

    At that time – 3 years ago – not a single one of them was of the view that Greece would remain inside the EU if it was to restructure its economy for growth. Indeed I asked all of them if they thought Greece would/could remain in the EU and not one of them thought it would.

    What has unfolded since then has been about buying time for the European financial system to digest the implications of the Grexit many of them know they need to have.

    The issues from here are about who gets burned by that Grexit (and keep your eyes on the balance sheets of a disturbing number of European banks – regardless of where they are) and what other nations decide that there may be something in it for them if they exit too – which leads to the gnarly political issue in Europe of how they handle exitees (do they keep them inside some sort of club with some access to EU wide supports, or do they spurn them forever after in the hope of deterring other exitees?)

    • Agreed.

      I did not touch much on the ESM or the other buffers built up and now mainly in place, which *should* work on protecting most of the losses on a Greek exit, but the volatility and credibility of the Euro surrounding such will be the longer lasting risk.

      • “ESM or the other buffers built up and now mainly in place”

        Unfortunately this isn’t really the case.. If you read the agreements closely you’ll find that sovereigns are still very much on the hook for their own debts and the “shared responsibility” is just blah blah to appease markets.

        The ECB/Bundesbank arguments and the German court rulings are just one example of what will actually happen when the brown stuff hits the fan.

        Personally I’d like to see Greece leave, just so we can see once and for all, after the initial shock, how the country goes free of the Euro. Unfortunately, as I spoke about for many years, I’m not sure they will be allowed to because their success would show others what they should do.

      • IP it appears that Turkey is being courted by the cuddly Russian bear too.

        with respect to the US lead attack on Putin I think its a very big error of strategy, could deliver a whole block of non Dollar friends onto the arms of China / Russia

      • If Germany and France weren’t vassal states of Murica they would be joing the Eurasian Union aswell. It makes nothing but perfect sense that the German and Russian economy be married together even more closely than it already is. Said it on here a few times, what Murica really fears is a Russia, Germany, France alliance which makes perfect economic and security sense for all three, with Russia and the former soviet satellites becomin silk road routes to China.

      • tonydd, it may yet prove a big mistake as other nations have realised that Murica will freeze them out of global capital markets if they do not act in Muricas purile “interests.” De-dollarisation, even to a small degree is protection against this.

    • Firstly they’ll be the huge scare campaign against Syriza. Think what the British establishment did to the Scots recently but bigger. Syriza is only 3-10% ahead.

      Secondly never underestimate the EUs desire to stop anyone leaving the Euro.

      So my prediction:
      – Current government wins re-election
      – The can gets kicked again

      Gee I hope I’m wrong!

  4. What happens to the euro in the grexit scenario? Stronger without the weight? Weaker on possible future exits?

    • Ronin8317MEMBER

      The more important question is whether NATO troops will be deployed in Greece to keep them inside the EU.

    • I would definitely say a LOT WEAKER due to the threat of contagion. That threat will increase dramatically should the Greek economy start to recover 2-3 years following any exit. Also we may have a Lehman style scenario as other EU countries are also likely to ask for debt write downs . EUR, I expect, will be crushed.

  5. Here you have democratic elections with Germany trying to force the Greek Citizens into voting their way by threatening to shut down their banks. The reality is true Democracy hasn’t existed for a long time. The Greek people should vote for change. The current agreements are illegal and after 6 years of the harsh austerity have done nothing to help the Greek economy or people. I pray for a win by Syriza and I hope Alex sticks to his election promises of renegotiating the current agreements and writing down and extending their debts to manageable levels . VIVA SYRIZA!!!

    • If SYRIZA wins and fails to try to keep its promises, they will be tarred and feathered.

      It is amazing to see many external commentators who never in a blue moon who cheer on a left wing movement get behind SYRIZA. I think people just want the saga to end.

      • Cornflakes, i agree with you but its more than a left wing right wing issue. If Austerity really was the solution, Greece should have started to see some of the fruits of their sacrifice by now. The reality is, that Greece had better success and better results after the Great Depression than they have had under this current, GER program of Austerity.

        The other parties in Greece are tainted and definately one of the advantages Alex from Syriza has is that he does not have the checkered past that the other do.

        I agree that if he starts to “water down” his promises and compromise too far with the Troika, he wont be around to long.

        However, i believe that drastic change is required and Greece cannot survive on its current path.

        A Grexit would be great as the only true industry in Greecde is Tourism. They have had 2 huge years due to the issues in Israel, Egypt and Middle East and despite the local issues, Greece is still viewed as a very safe place to visit and holiday.

        The Drachma will only enhance that attractiveness.

        Again, Greece needs change and a new path. Whether Syriza is the solution only time will tell.

  6. ” Following Greece, will be Spain and Portugal, with the rising anti-Brussels/Germany mood and a return to nationalism mixed with a worrying trend of extremism likely to kick over the crumbling edifice that is the “new Europe”

    I see this as a huge issue that will get the most media attention. Look at whats occurring at the moment. People smugglers ramping up the illegal immigrant smuggling with the so called ghost ships. How long do you think it will be before deteriorating economic conditions trigger protests and backlash at these people pays 10k each to get into europe.
    How long before the cost of dealing with these illegals forces the governments to look at what happened here.
    I see this as a huge social issue to capture the medias attention this year in europe and unfortunately i believe it will lead to the election of extreme right wing governments as the people of europe demand action.

  7. migtronixMEMBER

    And what happens if they Grexit, team up with Russia, and start booming? I don’t think the EU can play that long game.

  8. “https://au.news.yahoo.com/thewest/offbeat/a/25902475/desperate-spaniards-turn-to-fortune-teller/”

    Maybe i will try this myself.
    Cant be any worse than what ive had so far.

  9. Recent rhetoric is the start of negotiations. Germany is simply taking positions in advance of an expected win by the Greek opposition.

    My guess is that Greece will not be ‘allowed’ to leave and their negotiation position is strong, mostly because of the realistic threat of a British exit. Germany is trying to retain as much of the original agreement as possible but probably know that it will need to give in. The question now is how much.

    We’ll see how it unfolds.

  10. Wonder when the Greek bank runs start. You’d be mad to keep cash in a Greek bank if there is a possibility of being converted to a rapidly devaluating drachma.

    • They could Grexit without converting existing accounts.

      You keep your account denominated in Euros but now need Drachma to pay taxes and increasingly make purchases within Greece.

      The government provides a market to sell Drachma for Euro’s.

      If the Drachma is rapidly devaluing it will still suck but you won’t need to do a run on your bank.

      • You will need to do a run on the Bank to get your money out of drachmas which are going to quickly become totally worthless. It doesn’t matter if you haver electronic drachmas in the Bank if you can buy nothiong with them.

  11. “while Syriza leader Alexis Tsipras said his party would end German-led austerity.”


    This stupid baloney about ‘austerity’ continues – particularly of the German variety. If Greece leaves the Euro it will reaallly know some ‘austerity’! What value iots currency compared to the current Euro?
    How will they finance all their imports to continue the lifestyle that they have generously awarded themselves?

    It’s the same as all the discussion about Australia. There is some fantasy that suddenly we will spring into an enterprising bunch of engineers (despite the fact that the average maths capability across the population deteriorates) and immediately sprout modern High-Tech factoies from one end of it to the other leading us to immediate Nirvana.
    It won’t happen here and it won’t happen in Greece.

    • SkoptimistMEMBER

      Exactly. Apart from tourism what legal industry is going to rapidly recover???.
      I think any Grexit will likely lead to civil unrest (so bye bye to tourism) as the type austerity you describe is hoisted upon the populace.
      As you mention flawse, Australia isnt all that different with the only exception being that we still have assets that foreigners want and we are foolishly willing to sell.