THINQon : Should Greece leave the eurozone?

Finance Economics Should Greece leave the eurozone?

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Should Greece leave the eurozone?

Latest Post: November 5, 2011 at 12:21 PM

17 followers

After European leaders had agreed on a fund to save Greece from faltering on its debt, Greece Prime minister, in an inexplicable move, decided to reject it, or more precisely to bring it to a public referendum. The reaction of the European leaders was to declare the referendum not only a referendum of whether to accept the rescue plan but whether Greece remains part of the eurozone, admitting for the first time, I think, that the zone could be broken up.

A great article which explains the inherent problem of the eurozone and possible benefits to Greece of leaving it:
http://articles.chicagotribune.com/2011-10-09/business/ct-biz-1009-outside-opinion-eurozone-20111009_1_eurozone-members-single-currency-debt

And yet more is at stake here than the economy. The eurozone was more than an economic tie, it was a political one. Greece leaving the eurozone, more specifically in such a manner, means a breakup with the EU (even if for the moment it will be only with the eurozone). The crumbling of the EU may foretell wars within Europe. Don't forget, it wasn't long ago that Europe was plagued by wars among its members. The economy is always tied to politics.

European friends of mine, or more specifically their grandparents who lived through WWII, cared tremendously of having a unified Europe. Is this dream over?
What may be the fallouts of a crumbling of the eurozone?

I understand the EU leaders position, and even agree with it as I don't see an alternative. It changes what the referendum is about and makes it likely and even possible to pass while before its chances were negligible. Was there another way which is not as risky?

Is there a way to fix the euro such as to allow Greece the flexibility it needs to solve its economic woes (similarly Italy, Spain, Portugal, etc.) while keeping a common economy for the EU? This is important as I'm not sure that breaking the economic ties won't also break political ones. Important but perhaps impossible.

Reply to:

Emma Brock

November 4, 2011 at 3:23 AM

58 followers

Well, that didn't take long.

As Yves Smith of Naked Capitalism wrote:

"Reader Sufferin’ Succotash asked whether Papandreou would turn out to be Pericles or Petain. We now have our answer. His finance minister, Evengelos Venizelos, went to the G20 in Cannes (going directly after being discharged from the hospital, meaning he almost certainly did not inform and therefore intended to betray Papandreou) and issued a statement arguing that the need to get the next cash dole from the bailout program and maintain 'international credibility' trumped all other considerations. Papandreou backed down and canceled the referendum."

The odds against the referendum being held were always long because of elite resistance, the fragility of Panpandreou's own parliamentary coalition, and the fact that a vote rejecting the bailout terms would probably produce chaos (and besides I think Papandreou himself was probably most interested in using the threat of one as leverage against the ECB, though if so the Eurocrats called his bluff by threatening to "go nuclear" by expelling Greece from the Euro zone).

In theory though I thought the referendum was a capital idea. Again, Yves Smith put matters very succinctly: "If you had any doubts about the intent of the Eurobailouts, the latest news should settle them. The game plan was to severely limit Greek sovereignity and assert the primacy of creditor rights, even if they came at the expense of democracy". In other words, nobody asked the people of Greece whether they wanted to in effect bail out foreign banks through higher unemployment, drastic cuts in social services, and years of severe privation. That choice was made for them by the ECB and foreign governments working hand in glove with Greek parliamentarians. Prime Minister Papandreou upset the apple cart by introducing the radical concept that the people who will bear most of the costs of these policies should have a say in formulating them. That's absolutely the last thing global neo liberal elites want, and they wasted absolutely no time in reminding everyone who is really in charge.