Monday, June 15, 2015

The finale for Greece and the EU

The #Grexit debate has reached its peak. The next two weeks will decide if Greece stays in the euro or not. This is the biggest crisis that the EU has faced in a long time and probably its biggest crisis ever.

It is becoming clear that the Greek government will probably force the other Eurozone countries to choose A or B: Continue lending money to Greece without conditionality, or bear responsibility for Greece's exit from the euro. Whichever way you turn it, there are only bad solutions left.

Solution A: Keep on lending money to Greece without conditionality
  • No substantial improvement for the Greek people in the near future
  • More money needs to be transferred to Greece without guarantee that this money will be paid back
  • Negotiations for a third bailout package may need to start so that Greece can pay back the remaining outstanding debt
  • Public opinion in many other Eurozone countries will turn downright hostile toward the EU, right-wing parties will become more powerful. In the worst case, people will be so disappointed and disgusted by this European Union that we will see the breakup of the European project.

Solution B: Exit of Greece from the Eurozone
  • All funds given to Greece are lost
  • Massive economic and social problems for the Greek people, for example because the price of imported medicine will sharply increase as the drachma devalues
  • Massive financial loss for the French and Italian governments which together own 38% of the Greek government debt
  • Possible knock-on effects in Portugal, Italy, Spain which may strive for an exit from the Eurozone themselves to avoid further painful restructuring of their economies
  • Massive speculation against the stability of the euro which in the worst case may lead to the collapse of the Eurozone

This is a huge challenge for our politicians and for European solidarity as a whole.  Nobody wants the European project to break apart, but whichever scenarios is chosen, it will create massive losers.

Europe's politicians are just as fed up with this entire situation as the European people, but it is now absolutely fundamental that our politicians keep a cool head. Otherwise, we may look back to the next two weeks as the beginning of the end of the European project.

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