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Don’t Believe the Hype About Greece
The Eurozone isn’t on the verge of collapse, yet.
If Eurozone unravels over the coming weeks, it will be because of stupidity and panic, not because of Greece. There is absolutely no reason for the entire Eurozone to collapse due to Greece, and no reason to assume that it will or even come close.
A considerable majority of Greeks voted on Sunday to reject the onerous bailout conditions demanded by European creditors. More than 60 percent of those who went to the polls followed the call of Prime Minister Alexis Tspiras to stand up against years of punishing austerity. There were celebrations in the streets of Athens and promises by the Greek government that the result would strengthen the Greek position and force concessions from the Germans, the European Central Bank and the rest of the Eurozone.
If only.
If only the referendum marked the end of six agonizing years where Greece has been the symbol for the Eurozone and its future. If only the vote resolved the question of whether Greece is the proverbial first domino or instead a wounded limb that can be removed without killing the main body. If only the action of financial markets on Monday and throughout the upcoming week provided a clear signal about whether the other struggling members of the Eurozone, especially Italy and Spain, have recovered enough from the worst of the financial crisis to withstand the efforts of bond market speculators to send their sovereign yields soaring again to dangerous levels.
The immediate reactions on Sunday were, to put it blandly, mixed. Some members of the European Parliament and the German government said that there was no other path now than a “Grexit” from the euro. The German economy minister and head of the Social Democrats remarked, “Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness,” and concluded that there was little way for Greece to remain in the euro. On the flip side, the normally hawkish and hardline German Finance Minister Wolfgang Schaeublesaid that the member states of the Eurozone would not “leave Greece in the lurch,” though it isn’t clear what that actually means. German Chancellor Angela Merkel and French president Francois Hollande announced they would meet on Monday to discuss how best to respond.
Financial markets will have the first say, however, and that say is likely to be a resounding “OMG” combined with considerable volatility. Some of that will come from traders who have had a blah year looking to make very fast money. Some will come from fund managers who have been betting against the euro and skeptical of the debt of countries such as Spain and Greece. And some will simply be skittish investors whose nerves remain frazzled even six years after the financial crisis and primed to see any tremors not as normal features of the world we live in but as preludes to the Big One that will leave portfolios in tatters, companies in confusion and sovereign government finances in shambles.
Voices warning of the Big One will likely be the same voices that always warn of the Big One. In an infinitesimally small number of situations, those voices are right; the rest of the time they are very wrong. Heeding them is almost always a recipe for making spectacularly wrong decisions, except for once in a generation. This might be that one time, but I doubt it.
Does the situation in Greece really imperil the $17 trillion U.S. economy? Does it impact how 3 billion people in India and China will shape the next five or ten years, as hundreds of millions continue to lurch into the middle class? Does it impact how hundreds of millions of Africans stretching from Nigeria to Kenya manage their own economic moves into the future? No, no and no.
Read more: http://www.politico.com/magazine/story/2015/07/greece-eurozone-collapse-119752.html#ixzz3f57wKk7A
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