Monday 23 February 2015

It’s Time for Greece to Bite the Bullet and Prepare for Grexit

Having achieved only minor concessions from its EU creditors, Greece has at least bought itself some time, four months to be precise, for the Syriza led government to come up with a plan to fulfil its election mandate.

What is clear now, is that the Eurozone governments, with Germany making the running, are not prepared to countenance any real deviation away from the austerity policies forced onto Greece for the past five years. This being so, Greece, and in particular its government, either accepts the situation and reneges on the election pledges to end austerity, or it accepts that staying in the Euro is not compatible with a change in policy direction.

Syriza’s stance has always been to stay in the Euro, supported by around 70% of the Greek people, but last week’s ‘negotiations’ demonstrate that they will not be allowed to remain in the Euro unless they stick to the edicts of the German finance minister.

I confess to be puzzled by the reluctance of the Greek people to abandon the Euro, but they surely must now see that it is impossible to raise living standards from within the austerity straight-jacket of Euro membership.

Paul Mason, writing in The Guardian floats the interesting idea of Greece using a parallel digital currency along the lines of the bit-coin, which would keep the country going should they exit the Euro and the Greek banks collapse as a consequence. This idea has been championed by Yanis Varoufakis the Greek finance minister, and is the best idea I have seen to help cope with the transition from the Euro to (probably the Drachma).   

The other safety net that Greece could look into is getting some currency back up from either Russia or China, or both, to underpin the banks and the economy as a whole. Obviously, there will be a price for this, but it needs to be done. Russia particularly would like a foot in the door of Europe I’m sure, so the price may not be that high for some assistance.  

To get the support of the Greek people for this change of tack, Greece should hold a referendum on the issue, which I think is now winnable. Preparations should begin straight away.

It could be that faced with this threat, the EU decides to loosen up the conditions on Greece’s bail out, and so they may get to stay in the Euro after all, but they have to be prepared to leave or they will get nothing from Germany.

If Greece does exit the Euro, it may well be the beginning of the end for the currency anyway, and Greece would be much better off out of it.  

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