Calling bluffs in the eurozone crisis

Daphne Grathwohl, Deutsche Welle, 26.05.2012

Link to original article


In mid-June, Greece will have renewed elections. If opponents of the EU's austerity course win, then a Greek exit from the eurozone seems more likely. The consequences would be fatal for Greece and uncertain for the EU.

For many in Europe, there are unsettling numbers coming out of Greece: Polls show that the Coalition of the Radical Left (Syriza) could win 30 percent during a fresh round of voting on June 17, making Syriza the strongest force in parliament. That would have clear consequences, party head Alexis Tsipras has said. Greece would reject its austerity course.

Paradoxically, more than half of Greece sees things differently, though, says Janis Emmanouilidis of the European Policy Center (EPC), a think tank in Brussels.

"The most probable scenario is that a government will be formed that is led by the conservative Nea Dimokratia," he said.

If so, the conservatives would likely continue along with the austerity course demanded by the EU. […]

Regardless of the make-up of the new government, it will have to enter negotiations with the troika consisting of the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF). And if the country wants to make it out of the crisis, it cannot avoid reform, noted Janis Emmanouilidis. Those reforms will likely take years and will encompass new approaches to economics, politics and society.

"Greece has to reform itself radically, otherwise it will never make it out of this crisis," Emmanouilidis said. […]

"Both sides are bluffing - it's really a tough game of negotiating," observed Janis Emmanouilidis.

The EU argues that it could survive the withdrawal of a country from the currency union. And that has led banks, companies and politicians to run through and prepare for the scenario of a Greek withdrawal from the currency zone.

"It's self-evident that we have to prepare ourselves for all possible outcomes, otherwise we would not be doing our jobs," said the Euro Group President Jean Claude Juncker at an EU special summit on Wednesday (March 23).

In Greece, opponents of the austerity package argue that the troika cannot begin to foresee the consequences of a withdrawal, and, as such, that it must support the country even if it does not live up to its austerity pledges. There is some truth to that, says Janis Emmanouilidis, but it does not tell the whole story.

"To think at the same time that EU partners will support Greece in the long term even if it is not sticking to its pledges is wrong," he said, calling the negotiations a dangerous game for both sides. […]

An expensive farewell

It seems clear that leaving the EU would spell disaster for Greece, but what consequences that move would have for the EU and the eurozone generally is a topic of heated debate. Some think it could help ease the crisis, but others, like Bundesbank President Jens Weidmann warn of unforeseeable problems for Europe.

Fears of a domino effect that could draw other struggling EU member states into its path remain high. Janis Emmanouilidis also notes that leaving the eurozone - a legally unregulated and difficult to organize maneuver - would have its costs for the EU. His argument: only with well-negotiated favors in return, would a country be willing to leave the shared currency zone voluntarily.

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