The Greek people have spoken, though it came out sounding like a Sphinx: they wish to remain in the euro zone but refuse to forfeit the sovereignty necessary to do so, says Zachary Fillingham of Geopoliticalmonitor.com.
Cue another round of market jitters, pointless coalition negotiations, and doomsaying. At over two years and counting, one can’t help but feel a bit of déjà vu. But this time is different, and not just because of popular shifts against austerity policies all over Europe. This time the possibility of a Greek exit from the euro zone is being openly discussed at the highest levels of government, such as Wolfgang Schaeuble’s recent comments that the euro zone could survive an abrupt exit by Greece owing to the ‘protective mechanisms’ that have been built into the international grouping over the past two years.
Of course, this could be preliminary positioning in anticipation of sitting across from a Greek government that wants to re-negotiate bailout terms while remaining in the euro zone. If the Greek government that eventually coalesces choses to go down this road, Germany won’t have much leverage against what is, in essence, brinkmanship. After all, the only reason Germany has been so keen to shovel billions of dollars into the bottomless pit of Greek debt repayment for the past two years is fear of a Greek exit from the euro zone.
And make no mistake, this fear doesn’t stem from any economic deprivation that would result from Greece exiting Europe. Far from it, it’s the Greek people themselves who would suffer from a devalued currency, spiking inflation, and a plummet in GDP. The emerging consensus is that a newly-introduced drachma would lose 50 percent of its value in the blink of an eye. And the Greek people know this; that’s why they’re still heavily in favor of remaining in the euro zone.
Rather, the fear comes from the idea that a member of the euro zone could be torn out of the grouping, abruptly severing economic links that were so carefully established over the course of decades. Kicking Greece out of the euro zone would expose all other peripheral governments to dangerous economic speculation. For example, why would investors be interested in lending to Portugal, Spain, or Ireland if one day these countries might be expelled from the grouping? And as for the wealthy, entrepreneurial citizens of the abovementioned countries, they would send their capital overseas in order to preempt the expatriating capital restrictions that would surely accompany a euro zone exit. In fact, a low-level capital flight has already begun in some of these countries.
While it’s true that the European debt crisis has entered a critical new stage, this doesn’t necessarily mean that Greece will be exiting the euro zone. If coalition negotiations continue to produce no result, new elections will be held and this could happen as late as autumn. Until then, a caretaker government will quietly implement the terms of the existing bailout agreement, and who can say how the popular barometer will shift in the next 3-4 months. Although it should be noted that if elections were held tomorrow, it’s quite likely that the far left, anti-bailout Syriza party would form a government.
And however far-fetched it might seem, the prospect of a coup or some other temporary suspension of the democratic process should not be ruled out. If history is to be our guide, then the spirally social unrest and widespread belief that belief that the country’s fate hangs in the balance could combine to give rise to a strong man who steps in to “save Greece from herself.”
Zachary Fillingham is a contributor to Geopoliticalmonitor.com.