The Euro Crisis is normally not one of our topics – but on a day like this we cannot avoid it. It appears that the decisive moment is drawing nearer when Greece will have to leave (or will de facto be expelled from) the Euro zone. The country’s current government, consisting both of left-wing and right-wing extremists has done all to make it happen.
In the past five years, the main argument to save Greece from bankruptcy was the concern over the credibility of the Euro zone as a whole. If one country in the zone were to declare allowed to become insolvent and leave the Euro, it was said, this could trigger a chain reaction: creditors would lose confidence in other countries as well.
This reasoning does not sound convincing any more. The situation has changed. Given the Greek government’s stubborn unwillingness to make any serious effort at sanitizing the country’s economy, keeping Greece within the Euro would be more damaging to the currency’s credibility than seeing it leave. If the EU is, as it claims to be, a community of values, then it is impossible to continue accepting that one country openly refuses to abide by the common rules without facing any sanction. It is no longer acceptable that countries with lower per-capita incomes than Greece (such as Slovakia or the Baltic countries, who all have had to undergo their share of austerity measures) must shoulder Greece’s debt, only because Greece is unwilling to reform.
By now it seems that the leaders of the Euro zone are not only no more expecting Greece to make any credible reform effort, but (contrary to what they say) they probably even don’t would want this to happen. Any new proposal from Tsipras or Varoufakis would just prolong the pain… the two men have so profoundly undermined their own credibility that even a return to sincerity and honesty would not help them anymore.
But in one important point they are absolutely right: it is an illusion to believe Greece will repay its debts, and creditors should give up this illusion rather sooner than later. This will be an extremely painful moment for many European countries: they will have to write off the Greek bonds that currently are still listed as “assets” in their balance sheets.
The Grexit will be an occasion for the EU – and its politicians – to come clean. Jean-Claude Juncker who as Finance minister and Prime minister of Luxembourg as well as in his long-term function as the President of the Eurogroup has played a pivotal role in setting up the common currency, will have to admit to the public that the policy he has defended for the last twenty years was ill-conceived and irresponsible. Angela Merkel and Wolfgang Schäuble will have to go to the Bundestag and explain that the more than billion Euro that Germany holds in Greek debt will be lost forever.
As this table shows, their colleagues in other Euro countries have a similar problem: their exposure varies between 1.5 and 5% of their respective national GDPs. Since April, when the table was made, it likely will have increased rather than decreased.
This is going to be a cathartic moment: citizens will at last wake up and discover what the Euro Crisis really is about. Will the EU survive it?