Next Stop Grexodus?

Euro crise, Greek crisis, Greece to leave Euro, forecast, Euro area crisis, euro analysis, fundamental analysis main

27 Apr 2015

Despite the rhetoric of the heads of the major institutions and of the government leaders of the European Union, the risk of Greece exiting the euro area is by all means tangible. The distance between the parties are by now too great to be bridged. Even assuming that the Greek PM, Tsipras, if forced to choose between a watered-down compromise and a default, would opt for the former, acceptance of the decision by his party, Syriza, should not be taken for granted. In fact, Tsipras is unlikely to be able to hold in check a formation so ridden within malcontent that even only the initial concessions made at the Eurogroup of 20 February opened an internal front of total opposition to the possibility of a compromise being reached on austerity. A domestic political crisis would open a very uncertain phase in which the radical wing of Syriza would be replaced by parties with markedly different manifestos, even at odds with Syriza’s. The government’s action would become a struggle if a radical and swift implementation of reforms were imposed.

Euro crise, Greek crisis, Greece to leave Euro, forecast, Euro area crisis, euro analysis, fundamental analysisEconomic policy uncerttainty index, Source: Datastream

To be extremely brief, based on its actions and declarations, the Greek government seems to hold the view that current level of public debt is not the responsibility of Greece, but rather the result of the fiscal bailout strategy imposed by the Troika; that the social cost of the efforts required to reach and maintain the fiscal targets laid out by Europe is too high; and that a definitive solution to the crisis cannot imply a significant reduction of debt. For propagandistic reasons, or possibly out of true conviction, the emphasis of the Greek government is focused on the issue of its sovereignty, mistaken for its solvency. What’s more, the current government does not seem to have a full grasp of the actual functioning of the European institutions, and its decoy moves, in addition to wasting precious time, have deeply irritated the country’s European partners.