Sunday, January 5, 2014

Should the Grexit Discussion Return?

About a year ago, I wrote about a friend of mine who had predicted the Grexit for January 11, 2013 at 22 hours. Not only did he turn out wrong but the whole Grexit debate seems to have died during 2013.

Ex-Prime Minister Costas Simitis seems to want to bring the Grexit debate back on the table. It will be interesting to observe whether or not he succeeds with that.

I would like to offer one aspect of a possible Grexit debate which could serve a most useful purpuse. If a Grexit debate were not limited to the case of Greece but if, instead, it lead to an overall discussion among EU leadership about the structure of the common currency union, based on facts and analyses and not on prejudices and emotions, well, if that were to happen, then a renewed Grexit debate would serve a meaningful purpuse. 

Greece is no longer a financial urgency for foreign creditors: with a positive current account balance around the corner, Greece no longer needs net new money from abroad to survive. And since the bulk of Greece's debt is held by official institutions, a closed-shop mentality can succeed and events which might otherwise be uncontrollable can be contained. In short, a Grexit may hold a lot of scare for Greeks but certainly not for the rest of the Eurozone.

But can France continue to lose competitiveness and increase unemployment? Will the French accept forever that many of their products now come from Germany as do the loans which they need to pay for them? Will the Grande Nation accept this second-class standard forever? And if not, what can they do about it?

France still has a huge industrial capacity. Industrial capacities tend to react quickly to a devaluation of a national currency. France, after all, has experienced that for decades prior to the Euro.

My point is that a Grexit would be no threat to the Eurozone. The threat of a Frexit could quickly lead to disaster. So perhaps, before disaster strikes, Greece could initiate a Grexit debate so that a general debate about the Eurozone starts taking place so that things can be corrected/improved before something hits the fan.

1 comment:

  1. Imho Grexit has never been a real threat to the Eurozone.

    Your are right that France (and Italy) are the main economic problems lacking a political solution...

    H. Trickler