Karl-Heinz Paqué and Aristos Doxiadis
The German version of this article was published in Wirtschaftswoche on 13th April 2015.
It is an eerie picture. In a few days or weeks, the Greek government runs out of money to pay its internal bills and external debt service. The threat of default looms larger than ever, but both the Greeks and the Germans remain remarkably calm, though for completely different reasons. The Greeks somehow assume that, eventually, Europe will support them whatever they do. In turn, the Germans somehow assume that a Grexit will not really be such a bad thing.
Alas, both Greeks and Germans are wrong. The Greek error is most obvious. By now, 18 of 19 Eurozone governments are quite convinced that a Grexit would not anymore lead to a massive contagion of other crisis countries. They are right as these countries are dealing with their imbalances, and that is clearly recognized by financial markets. An invisible firewall has emerged around the western Mediterranean plus Ireland, with vast political consequences: the Spanish, the Portuguese and the Irish governments are by now among the loudest voices against special favors to Greece – in view of the hardships that their own populations had to suffer to regain credibility. In short: Greece stands alone. The consequences of this isolation are dire. If the Greek government really ignores the need for Eurozone-conditionality on financial aid, there will simply be a default. This will probably lead to Grexit and to a new currency that very few in Greece want to have. Wages will be massively lowered and paid in (soft) new Drachmas; and savings will be drastically devalued, thus leading to an expropriation through the backdoor. Eventually, ordinary Greek people will come out dramatically impoverished. Continue reading