Grexit: Win for both EU and Greece?
“I think at the end of the day, Greece will leave, there will be a so-called Grexit. I think it will be good for Greece, good for Europe because it will mean someone that takes a loss,” Steen Jakobsen, chief economist at Saxo Bank, told RT.
The odds that Greece will leave the eurozone are 20 percent, Eurasia Group's European analyst Mujtaba Rahman told CNBC. Germany's Commerzbank has upped their estimate to 50 percent.
“You have to remember that these two sides are in a battle with no solution,” the Saxo Bank economist said, adding that there is no ‘win-win’ situation.
— Holger Zschaepitz (@Schuldensuehner) February 17, 2015
Greece and the EU have less than 48 hours to reach a new bailout deal, and neither side seems prepared to make concessions. Greece doesn’t want more austerity, but the new Syriza government also doesn’t want the country to retain its massive €316 billion debt.
“No solution is on the table unless someone gives up,” Jakobsen said, adding that no one wants to lose.
The threat of a ‘Grexit’- a scenario in which Greece leaves the eurozone- has been on the rise since the new Syriza government won the general election in late January. The party campaigned on the promise of ending the terms of austerity the previous governments agreed with a Troika of lenders- the International Monetary Fund, the European Commission, and the European Central Bank.
“It’s not the Greek government or Greece that they are playing with, but Europe, and its future,” Greek Prime Minister Alexis Tsipras said on Wednesday.
Now, however, the banks are out of money, and the European Central Bank isn’t planning on dolling out more for free, but will charge high interest rates if banks, and the people of Greece, wants euro.
If Greece doesn’t accept what the EU offers - high interest loans - it will have to leave the euro and print its own currency to support Greek banks in desperate need of liquidity. This would put the country at a much greater risk of default, which is the reason it accepted EU aid in the first place.
“It will create short-term volatility in the marketplace… this is the beginning of something better for Greece and Europe,” Jakobsen said.
Doomed by Debt
Greece is buried in nearly €320 billion of debt. The EU came to Greece’s rescue in 2010 and 2014 with two bailouts totaling €240 billion, but not without any conditions.
Germany has warned no more disbursements will be released until
Greece accepts the bailout terms.
Austerity measures, or less spending, have been the EU’s solution to fixing Greece’s heavily indebted economy.
The situation in Greece has become worse, not better, since the 2009 debt crisis, and only in 2014 began to show signs of economic growth after six years of recession.
— Peter Spiegel (@SpiegelPeter) February 13, 2015
In the last five years, the economy has lost a quarter of its value, and more than one in three Greeks live below the poverty line. Unemployment continues to hover near 30 percent, and nearly double for the young.
Syriza campaigned on the promise to end the EU bailout, and Germany, the biggest contributor to the bailout, as well as a number of other EU countries, want Greece to stand by the plan their predecessors agreed to.
German Finance Minister Wolfgang Schauble has openly blamed Greece for its own failed banks, and has threatened the European Central Bank can switch off emergency funding.
“At the end of the day, Germany cannot go back to its voters and ask for money for a country that doesn’t even want to sign the legal document already embedded in the talks,” Jakobsen said.
In 1981, Greece became the tenth country to join the European Union, and less than 20 years later; it switched from the drachma to the new euro, which it now shares with 18 other countries.