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.