Despite the Greek parliament’s support last night for an unpopular new property tax, Europe’s divisions over the terms of any new bailout give credence to talk of a looming euro exit. But such an exit would be terrible news for Greece, and equally terrible for the eurozone. The bottom line is this: Greece isn’t going anywhere.
Greece has zero interest in leaving because its economy would lose more than it gains with a euro exit, and a devaluation. The eurozone’s core countries also have ample incentive to keep Greece in the club. Why would Germany agree? German exports — the lifeblood of the eurozone — would decline as a result of the currency appreciation precipitated by a Greek exit. On a broader level, if Greece left the eurozone, it would set a very dangerous political and economic precedent for other debt-ridden countries — Italy in particular.
Don’t listen to the doom and gloom merchants. Greece’s ratio of debt to GDP may have topped 150 per cent, but its eurozone status remains 100 per cent secure. Continue reading »