Grade school arithmetic suggests there is only limited hope the Eurogroup weekend summit delivers a clean getaway from the “Grexit” scenario.
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While we wait for much needed early elections, the world will most likely witness more of the same including a free-falling economy, cash shortages, capital controls, government-issued IOUs to pensioners, and the like. It is plausible that possibly some kind of last minute vote in the Greek parliament may lead to a unity government willing to conform with worn-down European terms in order to stay in the Euro; however, printing presses must be warmed and on the ready as a Greek exit is just as likely.
In typical Greek fashion, its government submitted detailed proposals late Thursday - a couple hours before the deadline specified at the Euro summit. The Euro Working Group will study them ahead of Saturday afternoon’s Eurogroup meeting; while the ultimate deadline for Greece will be the EU summit on Sunday.
In the five years that have passed since this crisis bubbled to the surface what remains to be seen is not so much whether Greece exits the euro currency but rather, whether German Chancellor Angela Merkel and French Prime Minister Francois Hollande opt for more bargaining, or final acceptance of the inevitable and/or ultimate denial that Greece must go. It’s time.
Unlike the pre-financial firewall days of 2012, our financial markets have nary reason to be overly concerned about Greece. Certainly, the EU and IMF want us to be afraid however. If Greece was a case study in college freshman economics, we would stop fretting about its petty GDP (perhaps 2.5% of Eurozone GDP), comparable to when markets shrugged their shoulders over the 2013 projected default of Detroit, Michigan or Puerto Rico’s brush with defaulting just one year ago.
It should be of no surprise that there’s no Marshall Plan (ERP) for Greece, nor have I seen or heard plans of one either. That’s no accident as they knew it would eventually come to this.
It is true that Greece suffered and continues to suffer a severe economic depression – similar to the collapse of the Soviet Union although not as bad as matched against the recent economic failures of Ukraine, Venezuela or Peru. What’s distinctive this time around are the green sprouts witnessed throughout Europe amidst the drag anchor of Greece. I conclude that in the end, financial markets truly don’t care much about Greece and as Europe has witnessed precipitously falling loan rates, better capital spending, promising manufacturing surveys, consumer confidence, and solid bank lending.
It’s my suspicion that economic leaders knew all along that Greece would never survive intact.
Further, it’s not a stretch to think that the whole economic formula – albeit well-intentioned – was not created to necessarily help Greece. Instead, it was nothing other than a means to keep other debtors (i.e. Italy, Portugal, and Spain) on the straight and narrow path of recovery, with promises of bountiful support from the ECB and talk of debt mutualization as a golden carrot on the end of a stick.
Once the market comes to its senses, it will realize that the rising or falling of Greece is inconsequential as compared to the overall discouragement of anti-austerity movements elsewhere on the continent. If Greece teaches Europe a lesson the job will have been complete and the recovery will continue.