Within the Month: Greece will remain in the EuroZone
Written 28 June 2015
The results of a Grexit are catastrophic for all parties involved, and may cause another financial crisis. The major culprit of the failure of the euro is said to be nationalism. German leaders refuse to pay for Greek debt because doing so would put their citizens under financial strain and hence they will lose votes. Tsipras is putting European proposals to a referendum, simply because that’s what he was elected to do: to make the Greek people a part of the process.
Nationalism will be what will save the euro, paradoxically enough. Greece refusing to accept any European proposals will lead to them defaulting on their IMF loans. This will put the country at default at which point they will likely have to leave the EuroZone. This will cause a collapse of the euro in the currency markets and precipitate a global financial crisis. This will put all of the EuroZone countries in great financial strain, leaving the citizens to suffer the most.
Countries like Germany and Finland will have to make a choice: will they forgive the debt of the Greeks and put their citizens under limited financial strain, or will they force Greece to leave the euro and put their citizens under great financial strain? This is no doubt the position that Tsipras and Varoufakis have been trying to get European financial elites in all along (keep in mind that Varoufakis is an expert in game theory).
The Europeans are now force to choose, and a rational choice will be to forgive Greece’s debts. Although many of these leaders will become unpopular in their countries, it is far better to take shrapnel wounds, dodging vital organs, than it is to get shot through the heart.
Greek negotiators took a gamble and it may pay off. EU elites could also take a gamble and force Greece out of the euro. However, while Greece is playing poker, Europe would be playing Russian roulette. Quite a feat for a small country to force the world’s largest economic region into such a dire situation.
What we will likely eventually see is a reformation of the EuroZone. Greece has plenty of structural problems which it has to solve as well, particularly tax loopholes. Such a scenario is certainly much preferable to the other.