Noah denkt™ - The Power of Balanced Reasoning |
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If Greece stays inside the Euro many more debt reliefs will be necessary in
years to come and the contagion risk of a Grexit will only get worse
Statement on the viability of non-Grexit debt relief proposals, drafted on June 19 and published on June 20,
2015
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As the standoff between the Tsipras government and the Eurogroup reaches its capitulation point the option of
a promise for further debt relief for Greece becomes ever more real. The likelihood of a resolution of the
current conflict involving such a promise for debt relief is sparked by all parties’ interest to keep Greece inside
the Euro. The inclusive anti-Grexit position is based on three general assumption: 1) Modern Europe would not
even exist without ancient Greece’s contribution to enlightenment. Modern Europe should hence feel an
obligation to not distance itself from its own cultural heritage; 2) Greece cannot leave the Euro without having to
leave the European Union. The latter would be a serious blow to Europe’s strategic interests in a region that is
at the crossroads between Europe and Asia. 3) A Grexit would come with an incalculable risk of contagion that
might even spell the end of the European Union itself.
This statement will focus its reasoning entirely on the latter of the three assumptions since it believes that a
Grexit from the Euro currency would - if handled well - not necessarily have to result in Greece’s exit from the
European Union. Clearly, it should be possible to explain to all parties concerned that the tough nature of a first
league currency - at least at this point in time - cannot do justice to the reality of the Greek economy. So let’s
focus on the contagion risk instead which in deed cannot be denied.
Proponents of the anti-Grexit debt relief argument maintain that another serious if not total haircut by Greece’s
creditors is the only adequate way forward to give Greece a fair chance to find its own footing again and to
avoid risking any speculative attacks against other highly indebted Eurogroup members. This reasoning is
flawed not just because of the singularity of Greece, whose Ottoman past and Orthodox heritage make it unique
within the Eurogroup and explain large part of its protectionist, anti-capitalist orientations. No further than that
the anti-Grexit debt relief argument also underestimates the structural imbalances which the Euro currency
imposes on the Greek economy. After all, it cannot be denied that markets would still have the hardest time to
adequately price newly issued Greek debt even after the current predicament might be resolved by a total debt
relief. So there would be new risks for Greece associated with seriously distorted interest rates looming in the
background. In other words, markets would again fail to give Greece the financial conditions it actually needs to
prosper in a sustainable manner. And it would hence be more than likely that Greece would start overspending
again. With new bail-out scenarios arising in years to come, however, the contagion risk of later Grexits will only
grow exponentially due to the ever higher entanglement of the Greek economy with that of the Eurogroup.
So, as nerve-wrecking and challenging as a Grexit may be this time around, both for the markets and for the
Euro economy, it will only be more demanding the next time the Grexit monster raises its head again. Noah
denkt™ is therefore convinced that there is no viable substitute for dealing with the present Grexit pain now.
Because things can only get worse as time goes by....
years to come and the contagion risk of a Grexit will only get worse
Statement on the viability of non-Grexit debt relief proposals, drafted on June 19 and published on June 20,
2015
------------------------------------------------------------------------------------------------------------------------------------------
As the standoff between the Tsipras government and the Eurogroup reaches its capitulation point the option of
a promise for further debt relief for Greece becomes ever more real. The likelihood of a resolution of the
current conflict involving such a promise for debt relief is sparked by all parties’ interest to keep Greece inside
the Euro. The inclusive anti-Grexit position is based on three general assumption: 1) Modern Europe would not
even exist without ancient Greece’s contribution to enlightenment. Modern Europe should hence feel an
obligation to not distance itself from its own cultural heritage; 2) Greece cannot leave the Euro without having to
leave the European Union. The latter would be a serious blow to Europe’s strategic interests in a region that is
at the crossroads between Europe and Asia. 3) A Grexit would come with an incalculable risk of contagion that
might even spell the end of the European Union itself.
This statement will focus its reasoning entirely on the latter of the three assumptions since it believes that a
Grexit from the Euro currency would - if handled well - not necessarily have to result in Greece’s exit from the
European Union. Clearly, it should be possible to explain to all parties concerned that the tough nature of a first
league currency - at least at this point in time - cannot do justice to the reality of the Greek economy. So let’s
focus on the contagion risk instead which in deed cannot be denied.
Proponents of the anti-Grexit debt relief argument maintain that another serious if not total haircut by Greece’s
creditors is the only adequate way forward to give Greece a fair chance to find its own footing again and to
avoid risking any speculative attacks against other highly indebted Eurogroup members. This reasoning is
flawed not just because of the singularity of Greece, whose Ottoman past and Orthodox heritage make it unique
within the Eurogroup and explain large part of its protectionist, anti-capitalist orientations. No further than that
the anti-Grexit debt relief argument also underestimates the structural imbalances which the Euro currency
imposes on the Greek economy. After all, it cannot be denied that markets would still have the hardest time to
adequately price newly issued Greek debt even after the current predicament might be resolved by a total debt
relief. So there would be new risks for Greece associated with seriously distorted interest rates looming in the
background. In other words, markets would again fail to give Greece the financial conditions it actually needs to
prosper in a sustainable manner. And it would hence be more than likely that Greece would start overspending
again. With new bail-out scenarios arising in years to come, however, the contagion risk of later Grexits will only
grow exponentially due to the ever higher entanglement of the Greek economy with that of the Eurogroup.
So, as nerve-wrecking and challenging as a Grexit may be this time around, both for the markets and for the
Euro economy, it will only be more demanding the next time the Grexit monster raises its head again. Noah
denkt™ is therefore convinced that there is no viable substitute for dealing with the present Grexit pain now.
Because things can only get worse as time goes by....
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| Keywords: contagion risk of a Grexit, singularity of Greece among Euro countries, consequences of debt relief for Greece, better a Grexit now not later, Greece cannot prosper in a sustainable manner being a member of the Euro, Euro currency inadequate for Greece |