No walls to save eurozone from ‘Greece amputation’ domino effect – Varoufakis
“Anyone who toys with the idea of cutting off bits of the eurozone, hoping the rest will survive is playing with fire,” Yanis Varoufakis told La Sexta, a Spanish TV channel. In an interview, recorded 10 days ago but broadcast on Sunday, Varoufakis warned that those in the EU who think they have been “ring-fenced” from the Greek struggle are mistaken.
“Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of eurozone to carry on,” Varoufakis said. “I very much doubt that that is the case. Not just because of Greece but for any part of the union.”
The fear factor in terms of a potential domino effect throughout Europe will be impossible to ignore if Athens is pushed to a point where it will have to consider exiting the eurozone. A default in Greece would have a ripple effect on the European economy, as Greece’s debt is tied to the European Central Bank, and shares a currency with 18 other eurozone members.
“Once the idea enters peoples’ minds that monetary union is not forever, speculation begins ... who’s next? That question is the solvent of any monetary union. Sooner or later it’s going to start raising interest rates, political tensions, capital flight,” Varoufakis warned.
French Finance Minister Michel Sapin claimed last week that the union can survive without Greece.
“If something damaging happens, it will be for Greece that it will be serious, for the Greek people, not for the other countries of the eurozone. We’re not at all in the same situation that we were in four or five years ago,”Sapin told reporters Saturday.
Over the years, Sapin said, EU economies grew to protect their banking system, to “build walls,” and to offer protection to those in the union if Greek exit ever happens. The French FM also called on Athens to abide by treaties and agreements signed.
In February, Greece’s creditors agreed to temporarily extend the bailout program until June while Athens is preparing an economic reform plan that the new government hope would finally set the country on a course of economic growth. A framework deal between Greece and its EU creditors is due on April 24.
Despite expressing clear intentions of averting default and remaining in the eurozone, Greece is struggling to keep its head above water and borrow money for regular repayments to its creditors. EU creditors want more reforms from Greece to get more funding. Greeks, instead of austerity policies, want to focus on stimulus schemes needed to recover economic growth.
“The Greek government has presented a realistic reform plan that doesn’t contain recessionary measures or burden the weaker layers of society, yet gives the economy breathing space,” Syriza party spokeswoman Rania Svigou said Sunday, Bloomberg reports. “The government will exhaust all possibilities for a solution that respects the mandate of the Greek people.”