Posted on 01/04/2015 12:15:44 PM PST by Kaslin
There's an amusing pair of headlines back-to-back today on what a Greek exit from the Eurozone might mean.
One view is catastrophic, the others is along the lines of no problem. Let's start with the catastrophe.
Economic historian Barry Eichengreen says Greek Euro Exit Would be Lehman Brothers Squared.
A decision by a new Greek government to leave the eurozone would set off devastating turmoil in financial markets even worse than the collapse of Lehman Brothers in 2008, a leading international economist warned Saturday.Limited Contagion Thesis
A Greek exit would likely spark runs on Greek banks and the countrys stock market and end with the imposition of severe capital controls, said , an economic historian at the University of California at Berkeley. He spoke as part of a panel discussion on the euro crisis at the American Economic Associations annual meeting.
The exit would also spill into other countries as investors speculate about which might be next to leave the currency union, he said.
In the short run, it would be Lehman Brothers squared, Eichengreen warned.
Martin Feldstein [professor of economics at Harvard University], a longtime critic of the euro project, said all the attempts to return Europe to healthy growth have failed.
I think there may be no way to end to euro crisis, Feldstein said.
The options being discussed to stem the crisis, including launch of full scale quantitative easing by the European Central Bank, are in my judgment not likely to be any more successful, Feldstein said.
The best way to ensure the euros survival would be for each individual eurozone member state to enact its own tax policies to spur demand, including cutting the value-added tax for the next five years to increase consumer spending, Feldstein said.
He predicted that European politicians would swallow hard once again and make the compromises necessary to keep Greece in the currency union.
While holding the eurozone together will be costly and difficult and painful for the politicians, breaking it up will be even more costly and more difficult, he said.
The German government believes that the euro zone would now be able to cope with a Greece exit if that proved to be necessary, Der Spiegel news magazine reported on Saturday, citing unnamed government sources.Competing Views on Funding Needs
Both Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble believe the euro zone has implemented enough reforms since the height of the regional crisis in 2012 to make a potential Greece exit manageable, Der Spiegel reported.
"The danger of contagion is limited because Portugal and Ireland are considered rehabilitated," the weekly news magazine quoted one government source saying.
In addition, the European Stability Mechanism (ESM), the euro zone's bailout fund, is an "effective" rescue mechanism and was now available, another source added. Major banks would be protected by the banking union.
According to the report, the German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsipras wins an election set for Jan. 25.
Analysts at Bank of America Merill Lynch, think Tsipras will face a budget black hole of at least 28 billion euros in the first two years of his government, with nowhere to borrow from and 17 billion euros of repayments to make in the first year.In contrast, the Wall Street Journal reports Greece Expects Primary Budget Surplus for 2015.
Greeces 2015 budget, submitted by the government to parliament on Friday, aims to meet the fiscal demands of the countrys creditors but comes without the prior approval of its troika of international inspectors.Primary Account Surplus or Not?
According to the budget, Greece will achieve a primary budget surplus—before taking into account debt payments—of 3.3 billion ($4.1 billion), equal to 3% of gross domestic product, next year, which is in line with the countrys bailout program.
Overall, the government will record only a minor budget deficit of 338 million—equivalent to just 0.2% of gross domestic product—next year, in effect marking the first balanced budget Greece has produced in four decades.
Despite surpassing its budget targets for three years running, Greece is at loggerheads with the troika—made up of representatives from the European Commission, the International Monetary Fund and the European Central Bank—over further fiscal measures the country must take, as well as a number of promised overhauls.
Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.Possibilities
Le Pen may be too early, and France may not be that country, but the time will come.
Greece, Finland, Germany, Belgium, and even France are possibilities. All it will take, is for one charismatic person, timing social mood correctly, to say precisely one right thing at exactly the right time. It will happen.
The European Left's candidate for the European Commission presidency, Alexis Tsipras, Friday called for the immediate release of Sinn Fein leader Gerry Adams who is been held for questioning in connection with the 1972 murder of Jean McConville. Tsipras called the arrest a "politically inflammatory act against democracy".
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.