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Home > Blogs > Anthony Harrington > A strategic look at the euro problem—What if Greece stayed and Germany left?

A strategic look at the euro problem—What if Greece stayed and Germany left?

Eurozone Crisis | A strategic look at the euro problem—What if Greece stayed and Germany left? Anthony Harrington

With so many economists, market watchers, and foreign currency specialists giving their views on the euro crisis, it is refreshing to come across a brilliant piece of “what if” analysis from a completely different perspective. STRATFOR Global Intelligence produces strategic briefings and analyses on a wide range of subjects, both military and geopolitical. The ongoing eurozone crisis has caught the attention of its analysts and it has a number of really good papers on the theme. The one that concerns us here is “Germany, Greece and Exiting the Eurozone.”

In this paper, STRATFOR analysts Marko Papic, Robert Reinfrank, and Peter Zeihan pick up the theme that “the hot topic in Europe at the moment” is the reconstitution of the eurozone, whether by a German exit or a Greek expulsion. Despite some recent fulminating by the German Chancellor Angela Merkel, the team point out that punting Greece out of the euro is not particularly “doable.” It would require a unanimous decision by all 27 member states, including Greece, so this would only happen if Greece wanted to go and everyone else wanted to see the back of it.

Since the major reason why Greece would want to leave the eurozone would be to re-introduce the Drachma in order to devalue it, EU countries holding substantial Greek debt would not be thrilled. Moreover, STRATFOR points out, the Greek government would have an unenviable task on its hands trying to force its citizens to accept a currency which everyone knew the government intended to debase.

Given the deep discontent of the German public over getting stuck with the lion’s share of bailing out profligate Greeks, the analysts float the idea of what might happen if Germany turned its back on the euro and reintroduced the Deutschemark. They point out that while this would not be easy, leaving the euro would be a great deal easier for the Germans than for the Greeks. For a start, the German Bundesbank enjoyed a great deal of respect, as did the mark as a store of value, and Germany would not be leaving the euro in order to debase the mark, rather the reverse. So on the currency front, you could score Germany 10, and the Greeks 1, if you were feeling generous towards Athens. Similarly with the two countries’ economies.  In a real sense, “busting” the euro would simply be an inevitable recognition of the geopolitical reality imposed by the continent of Europe itself, STRATFOR argues.

“Europe is the second-smallest continent on the planet but has the second-largest number of states packed into its territory. This is not a coincidence. Europe’s multitude of peninsulas, large islands and mountain chains create the geographic conditions that often allow even the weakest political authority to persist… As cracks have begun to show in both the political and economic support for the eurozone, however, it is clear that the convergence criteria failed to overcome divergent geography and history. Greece’s violations of the Growth and Stability Pact are clearly the most egregious, but essentially all eurozone members—including France and Germany, which helped draft the rules—have contravened the rules from the very beginning.”

The driver for Germany leaving the eurozone, the analysts point out, comes down to the fear that after the Greek financial crisis, the Germans will be on the hook for the rest of the PIIGs if defaulting on debt starts to become the norm. In that case, leaving the euro could end up being vastly cheaper for Germany than sticking with it.  If the idea of Germany departing the euro project and carving out a new path for itself doesn’t strike you as scary, consider where Europe was in the 1940s…

Further reading on sovereign debt and the Greek Financial Crisis

Tags: EU , European Monetary Union , financial crisis , Germany , Greece , sovereign debt
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  1. Anonymous Comment says:
    Wed Jun 20 14:51:35 BST 2012

    I feel so much hppiaer now I understand all this. Thanks!
  2. car1dvr says:
    Fri Jun 17 09:22:16 BST 2011

    I believe the problem in greece simply came from governments buying votes with wages and pensions they would not have to pay for. This is an endemic flaw in any elective oligarchy where the public is insulated from decisive power and usually kept unaware of policymaking information.

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