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FOR PEOPLE WITH their eyes on the financial markets, it has been less a case of being wary of Greeks bearing gifts – more those carrying anti-austerity policies.
Over recent months, attention has been focussed on the ongoing march of the left-wing Syriza party and the chance that an election win would eventually end in a so-called “Grexit”.
With Greeks headed to voting booths in just over a week, TheJournal.ie takes a look at why European leaders are so spooked and what the likely election outcome in the nation of 11 million would mean here in Ireland.
What’s this Grexit all about?
If the polls are to be believed, the anti-austerity Syriza is on course to take government from the ruling conservatives in the election on Sunday.
That possibility has already been sending wobbles through financial circles based on the party’s pledge to say goodbye to deep budget cuts and renegotiate the terms of its €240 billion bailout.
In the event of a stalemate with lenders, Greece’s economy would quickly come grinding to a halt, leaving the EU with two basic choices.
One would be to keep the troubled nation in the eurozone and row back on deals already signed. The second, more-drastic scenario, dubbed a Grexit, would mean the EU stood firm and severed the country from the common currency to fend for itself.
What are the chances of it happening?
For starters, it depends on Syriza winning the election. Sitting prime minister Antonio Samaras has so far been holding firm on the austerity path despite being on the wrong end of 25% unemployment – or roughly 50% among the nation’s youth.
He has been using Grexit fears as a propaganda tool, claiming that the election will effectively be a referendum on Greece sticking with the EU.
For his part, Syriza leader Alexis Tsipras has consistently vowed to end austerity and strike a new deal with lenders, although his rhetoric has softened as the prospects of an election win have started to look increasingly likely.
But any rejection of the tight budget constraints linked to Greece’s bailout terms puts the country on a collision course with influential EU member states.
The most powerful, Germany, where balanced budgets are akin to gospel, has been leading the vanguard in tough talk.
A recent Der Spiegel article, seen as an attempt to spook left-wing Greeks into falling in line, said Chancellor Angela Merkel and her government had now come to see a Grexit as “manageable”.
Why does anyone care if Greece ditches the euro?
The fear is that Greece returning to the drachma, or something like it, would send the signal to other member states – and the financial markets – that euro membership was negotiable and any disgruntled nation could pull the pin on the common currency.
Economist Danae Kyriakopoulou, from the UK-based Centre for Economic and Business Research (CEBR), recently wrote that the currency bloc had found itself at a “critical juncture” and it was stuck between two unhappy outcomes.
“On the one hand, the evidence against the policies of austerity that have been implemented in the periphery in the aftermath of the crisis has been overwhelming,” she said.
On the other hand, a breakup of the union starting with a Grexit would also be catastrophic and (we think) that the risks to the rest of the eurozone will be much higher than many politicians and the media consensus dare to admit.”
While European banks have limited exposure to Greece, where a new drachma could be worth 50% less than the euro, JP Morgan has forecast a Grexit could still send the common currency crashing nearly to parity with the US dollar because of the “contagion effect” in neighbouring countries like Italy.
Of course, there’s a good chance these worst-case scenarios won’t end up playing out at all.
Economists surveyed in a recent Bloomberg poll said there was an 80% chance Greece would stay the course with the euro even if Syriza went in to government with a majority.
The European Commission has also put its foot down, saying earlier this month that eurozone membership was “irrevocable” although it was more opaque on whether a country that was dragging the chain could be booted out.
What would a Grexit mean for Ireland if it happens?
Goodbody chief economist Dermot O’Leary thinks that even with Greece acting as a drag on the eurozone, Ireland would, on balance, be better off without a Grexit.
“The direct link between Greece’s economy and the euro is miniscule … our concern is that you would have a repeat of what happened to the markets, sovereign bond markets in particular, in 2011 and 2012 when there was concern about the future of the euro as a project,” he said.
Bond prices spiked at the time making it much more expensive for many European governments to borrow money, although since then Ireland’s economy has gone through a transformation and its debts are now seen as a pretty safe bet.
Another, more controversial, reason for both Ireland – and importantly, Germany - wanting to keep Greece in the eurozone is that being wrapped up with basket-case economies actually helps export-driven nations.
Weaker economies dragging down the euro works in favour of the German industrial machine because it makes selling goods to the US, UK and Asia cheaper and therefore more competitive.
And while consumers rightfully aren’t fans of a low euro – bringing with it expensive imports and trips outside Europe – it is also a win for Ireland’s economy as nearly two-thirds of all exports end up outside the eurozone.
Can we negotiate a better debt deal if Greece agrees one?
That’s another potential plus for Ireland if Greece strikes a new deal with creditors and remains with the euro, although the odds don’t look so good.
The hope is that Ireland, the troika’s star pupil for its economic turnaround since taking a €67.5 billion bailout, could use the bargaining chip of a Greek agreement to also strike better terms with the European lenders.
Tánaiste Joan Burton this week said she saw merit in an international debt-relief conference where the money owed by all the bailed-out PIGS nations – Portugal, Ireland, Greece and Spain – would be on the table.
But O’Leary was not convinced Ireland would get a better deal, even if Greece squeezed lenders into offering it an easier way out, because it had already renegotiated some of its bailout terms.
Those agreements included the Republic repaying its high-interest IMF loans early and stretching out €25 billion in government bond sales stemming from the collapse of Anglo Irish Bank and Irish Nationwide over 20 years.
That won’t stop politicians here asking for further relief, but I think Ireland’s considered to be out of trouble and back on its feet now,” O’Leary said.
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Interesting that the article refers to germany as the most powerful EU state. How can this be? I remember all the waffle during the treaty referendums about this being a union of equals?
How quickly the mask drops
Seriously Whistler..Wake up pal..Some are way more equal than others..
Germany has the biggest economy in Europe.
No sh*t Sherlock.
Just calling out a nonsensical comment, you might notice I do that quite a bit Scips.
Germany has a population of 84 million, of course they’re powerful.
Rightly they should have a bigger say than Greece with 11 million people.
That’s right and the world should shut up and bow down to our Chinese overlords.
I know Diarmuid I have to do it with u nearly everyday.
What we really need to worry about is if the UK pull out of Europe, with most of our exports going there and already having a different currency them leaving the union would the last nail in the Irish economies export coffin!
A party who won’t tow the eu line. This should be interesting
The consequences of Austerity is coming back to roost, Syriza have not said that the debt will not be paid. They have said illegitimate and illegal debt will not be paid. Look at Ecuador, Correa told the Vulture and Hedge funds to take a leap and now they are back on the financial markets dictating the interest on their own sovereign debt.
In Spain the rise of Podemos from an unknown party to polling as first in a general election in under year is a sign of the times.
Podemos under Pablo Iglesias are gonna break the two party system in Spain. Iglesias looks like the only one capable of any kind of a solution. He has the traditional party’s crapping bricks because in all his head to head interviews he rips apart their arguments because he is a professor of political science.
The strategy of only running for the general elections and leaving the local elections alone is a sound one for a young political party who still have not got the big structure to vet all candidates.
Podemos don’t claim to have all the answers but they want a direct democracy and give the power back to the people.
Ecuador have not implemented austerity budgets and have grown at 4% since 2007, therefore big mac must be right…
Ecuador’s growth had nothing to do with record crude prices or preceding decades of military coup mismanagement. It was also not heavily supported by their government running a deficit of 5% to fund investment… nope… and those deficits have only increased their national debt considerably, driving up their borrowing costs, but that will only affect future generations.
Clearly, Ecuador have the answer and it’s just a big old conspiracy that everyone else isn’t doing the same.
Austerity causes deflation.
Deflation increases the cost of repayment of the public debt.
Austerity causes social damage and extreme hardship with helping to balance the annual public exchequer deficit.
The vast majority of our politicians subscribe to austerity because it represents a political not an economic orthodoxy.
Austerity has been discredited but ours our politicians are wedded to it.
I think Ireland needs a Pablo Iglesias to put us back on the Financial market, instead of being made pay a debt to Europe that far out weighs the amount we should be paying, hopefully we get this beef deal with China & the gov don’t ruin it like our oil , gas , wind farms etc
Under Correa the national debt has stabilised and being a sovereign nation with their own currency the central bank can control inflation. Things are a lot better with the money being used by the government for the benefit of its citizens. They don’t recognise second or third hand bonds. They fix their own interest on government bonds and now all the hedge and investment funds who threatened to bankrupt the country are happy to buy the debt at the rate established by the government and its central bank. All country’s will run a deficit but the key is being able to control it just like the UK that have a debt of about 530 billion pounds but they are not in the same state as he PIGS
But in Ireland what is needed is a United Left to try and break the system of the rotating governments and try to implement real change. Make politics more inclusive rather than every few years vote for who you like best. Hold the politicians to answer for the decisions they take in the government and not let them forget that it was the will of the people that got them elected and the will of the people can oust them if they forget it.
Greece would thrive outside the EU. That is why the EU elite want it to stay in … they are afraid of others following them
Absolutely
Greece’s malaise has nothing to do with its generations of corrupt & bogus government tax collecting & overspending….. no, its the big bad EU’s fault!
Or…. In reality, Greece can leave the EU & Euro should she chose, but the Greek people want to both remain in both.
It was by majority their won fault but the government was helped to cook the books from the likes of the IMF, Goldman Sachs to create and stoke the credit bubbles imitating the French and German economies but the Greeks never had the resources to affront the debt. The BCE wanted to roll out the new currency and only had superficial control and very little power to bring to heel the Germans and French so the southern nations thought what’s good for the goose is good for the gander
According to the IMF, EVERY part of the world (USA, Indian subcontinent, China, Africa, South America, Australia etc) all grew …EXCEPT the Euro zone, which is trembling on the verge of its third recession in 7 years
Greece cannot grow as its mountain of debt is crippling it. And Greece cannot have a serious renegotiation of this debt, as long as its inside the euro The Greek people are suffering to stay within the single currency
Please explain why they would thrive.
Their new currency would devalue enormously. Meaning that imports would be a lot dearer (high inflation). The Greek central bank would have to raise interest rates to fight this and of course this would increase all mortgage costs, lowering disposable income etc. the economy would be in dire straits.
Interest rates would not increase, the Drachma would keep going down until it found its new and proper level.
Inflation is a continuous rise in prices, therefore a depreciation is not inflationary as it is a once and for all drop in value and prices would stabilise at their new level
In Iceland the currency plummeted over 50% and prices shot up but then stopped going up as the currency had no further to fall
So the fact that prices of imports would probably double would be fine???
To say that a falling currency value would not result in increased interest rates is wrong. Just look at what’s happening in Russia today with the collapse of their currency. Greece would go through the same.
Also you say the Drachma would keep going down until it found its new level and the depreciation would be once off. So which is it the drop in value would be quick or not???? Again I refer you to what’s happening in Russia today.
Yes, people would temporarily suffer an increase in import prices but exports would also be a lot more competitive.
Plus it would be a major boost for its tourism industry, as going to Greece would be a lot cheaper
Interest rates only increase if there is a specific level the govt does not want its currency to go below. Under what is called a “floating” exchange rate, interest rates are set to suit your own domestic economy and the currency floats downwards
Iceland had to put capital controls in place to stop the collapse. No one is allowed to sell the krona, apart from getting a little holiday cash. So billions of foreign investments are stuck there, still trying to get their money out 7 years later. The currency is bound to fall again if controls are ever lifted.
Exports being more competitive is correct but Greece is not a strong exporting country. One of their main problems is the inefficiency of their industry. Relying solely on increased tourism will not counter the higher electricity bills due to higher imported oil prices and all other higher costs of imports.
Iceland didn’t renege on debt but rather allowed the Icesave bank collapse and taking the savings of people in uk and holland with it. The Icelandic government have committed to repaying this. So they will pay in the longer term.
Greece will get a deal because Germany cannot afford Euro land to implode, Germany has its own greed to blame. Germany pre Euro positioned itself to benefit from events that have unfolded – they fattened the PIGS for slaughter whilst over inflated Germany all of a sudden became more competitive – and EU swallowed it hook line and sinker ! First they swamped Europe with cheap credit, inevitably asset prices spiralled upwards out of control, they put no credit risk controls in place to protect against the inevitable fall in asset prices and through insistance on forcing debt be repaid have enslaved the PIGS. With rising asset prices wages rose until the PIGS became uncompetitive. When it all collapsed all we were left with was assets that fell 50% and previously over inflated salaries cut or jobs disappeared. Huge bailouts were given at extortionate rates of interest of 7-15% to PIGS whilst those providing the capital (Germany ) were able to raise that capital on the markets at of 1-3% – guaranteed they would be repaid by ensuring the debt was soverign. Real neighbourly of you – and PIGS enslaved for generations.
Well fair play to Germany -we were all fooled, but as all bullies learn even a little guy can give you a bloody nose if you push them too far. Maybe Greece might just do that. If they had the drachma then their tourism would flourish, they could rebuild their foreign reserves, they would still eat and at least they can control their own destiny once again.
Germany will not give Greece any deal other than an adjustment in time to repay.
Implementation, implementation, implementation.
Can we negotiate a better debt deal if Greece agrees one?
I never laughed as much, we….meaning the wonderfully inept and yellow bellied euro lapdogs Fine Gael….negotiating to get a better deal….hahahaha…..they’ll get their hair ruffled, told to shut up and go stand in the corner.
We don’t have a representative government, we’ve cowards.
Again, what do you propose they do? What should they ask for and what can they get?
I’m sick and tired of the eu. Sick and tired of it. Hate the whole bloody thing at this stage. Please somebody find a way out of the eurozone hell.
In or out of the euro, you can be sure of one thing……….they will reach the latter stages of the next Euros, despite only scoring once, having no decent players and having Giorgius Samaras in the team.
Actually our mates Norn Iron will probably qualify ahead of them this time round.
If Greece left the Euro reality is that no one knows what will happen for sure.
If Greece left the Euro but kept the debt then it would approx double. Bonus is the exports would be very cheap. But what export industries does Greece have. Tourism would increase as it would be cheaper to holiday there. Bonus for Irish holiday makers
If Greece left the Euro and defaulted on debt they will turn to IMF for emergency loans leading back to the scenario above.
Either way debt can not be avoided. Only option for Greece is to reduce its debt burden through refinancing current debt at lower rates and burning certain amount of bond holders bring down their debt to sustainable levels.
Outside the euro, Greece, with its own central bank, could monetise a lot of its debt, as Britain and America have done.
For instance Britain’s central bank owns 37% of government debt
The wonders modern finance, when no one else will lend to you, just borrow from yourself.
The euro is only based on German economic performance if that goes so does the Euro.
Good news for Ireland if Greece managed to get a new agreement on its debts? Not really given the calibre of politician we have they would come back to Ireland waving another “seismic” shift and little else.
Kerry, when you in to a negotiation you have to have something to negotiate with. What would you propose any of our politicians (Sinn Fein, FG, doesn’t matter really) handle this?
Our politicians handed over all our ability to negotiate when they paid the bond holders off David that’s why I have no trust in our politicians abilities to negotiate.
Pour yourself a drink kerry
Kerry is the journals resident whinger. Always giving out about the government but I’ve never heard him come up with an alternative solution to whatever he’s complaining about. Depressing.
Welcome to Twitter, Pepper.
It’s amazing how you can be so well informed about commenters with such a new profile.
Euro has a population of some 740+mn, of that Germany is some 82mn , 12% not 51%- so it is time that proportion was reflected in a democracy. 650+ mn have been completly sidelined and disenfranchised by EU policy – time to overhall this bureaucracy that operates to favour the policy of one nation to the detriment of others. How dare the EU( aka Germany) force a soverign nation to make private debts soverign debts with a gun to our heads. Even more shame that the existing FG/Labour sliveens said they would get a deal and now we know they have rolled over and not going to pursue -irish history will not forget your treachery! May ye rot in the well pensioned beds ye have feathered off the sweat of the irish people for generations to come. The election cannot come soon enough.
Agreed. Germany should only contribute 12% of the budget. Oh shit…
EU has a population of just over 500m.
Yeah not sure where you’re pulling 740m out of?
Jim Bob. – We guaranteed our banks all on our own.
We guaranteed them after Brian Cowan went off to play golf with Seán Fitzpatrick.
A lot of people like to rewrite history to suit themselves. It doesn’t suit us to blame our own.
“A recent Der Spiegel article, seen as an attempt to spook left-wing Greeks into falling in line”
That only works with the Irish who are sent back to the polls until they give the right answer.
@F.man well said ! Look at the Lisbon treaty for instance the ministers of that time were predicting a yes vote second time around…
It is time to start asking serious questions about Germanies domination off Europe and do we as non Germans want them to dictate to the rest off us, after all they screwed us, portugal, greece, Spain, etc. Just to keep their banks proped up. The German Ideal is no longer working and The EU now needs to change.
The real problem on the horizon is France, not Greece.
Oh the irony of Greece potentially being the first country to leave the EU
Censored, let Greece go of that is the position after the election. She will collapse and the result will be a devalued currency and a destroyed nation. Bring on the next election in Ireland and if we go anti -austerity ,the same will happen to us. Total economic destruction and desolation. Sad , but true.
Iceland let its currency plummet and reneged on its foreign debts and is doing rather well now.
Private debt was not shifted onto the taxpayer as happened here
In other words, there are alternatives
big willy your not allowed to mention Iceland you should know that.
Greenland left in 1985. Iceland is a disaster area.
Odd Tap that the Spiegel doesn’t agree with you?
More nonsense, Iceland did not leave its currency fall. They stepped in with capital controls to stop the tsunami of people trying to get out. They are also paying off the IMF debt.
As for things going well there, most people have crippling debts while dealing with high inflation and high interest rates. Very tough place to be, a lot are bankrupt, but working away year after year just to pay the interest.
Sounds a bit like Ireland and the Irish Paul.
So did ecuador and there economy Is doing pretty well
Sooner Ireland follows the better…
Come on Greece save us all from the
As long as those pesky Huns don’t get their towels on my next Greek Hol sunbather before I do then all will be good. Anyhow, I always thought the euro is a fabrication of Albert pikes vision in the early nineteenth century and the coming one world government.
Money, just an illusion. Next.
This is an opinion piece not an explainer.
Thank Jesus someone said it
Take a good look at the Rothschild banking dynasty and the funding of England and France in joint during the 100 year war. Go back further to the Abkhazian Jewish roots and then why the euro was established after world war 2. The euro rabbit hole is deeper than we think ?
its simple enough you cant fix a debt problem with more debt. Greece’s position is unsustainable in the eurozone.
the thing that eu policymakers are concerned about is that if greece leaves many others will also and their dream of a federal europe will be in tatters.
italy is the 3rd largest economy in the eurozone and the euro is proving to be unworkable for them, their national debt increases year on year. all the different countries in the eurozone cannot operate under 1 interest rate and monetary policy as set by the unelected ecb.
a greek exit will lead to an avalanche of countries thinking of leaving.
as regards us………..most of our officials are puppets of the finance sector, i would not expect much from them as it stands at present.
Greece represents less than 3% of the Eurozone economy. People are making too much of a big deal out of this.
Usually the same political and economist pundits who have been predicting the demise of the Euro since it’s inception.
The Euro will March on as always and add new members despite Greece voting to destroy their economy.
The Euro destroyed their economy, the Euro was a rush job when it came in and the fact that each economy of each country is different due to size, population, trade as in imports and exports, goods, wages, spending, buying, culture and saving will always create difficulties with the Euro. This will make each eurozone country have a different level of how they use the Euro in the eurozone system, that will always effects other eurozone countries like putting the wrong gears into a gearbox or putting the wrong engines on a plane and each one of those engines are different. The stress from this will eventually put so much stress on the system it crashes and breaks up. The only other way is to get rid of democracy and create direct political rule from Brussels over each Eurozone country. As Mitterrand predicted in the 1990s, first comes monetary union followed by political union as he predicted for the E.E.C.
What praytell is a grexit??? Over educated fools making up moronic, ironic cliché like words!!!
I totally agree, it’s such an ironiché.
Chancellor Angela Merkel and who made her or even voted for her to be the one telling the rest of the E.U. what to do, she is only concerned with German exports and a dictator to the rest of the E.U.
have your say