Euro Crisis: Is Grexit Off the Table?

With the narrow victory of New Democracy, a pro-bailout party in Greece, relegating the anti-bailout radical left Syriza party to second place, can we expect "Grexit" - meaning the exit of Greece from the Eurozone - to be off the table?

Not really. Citigroup's chief economist, Willem Buiter (the one who coined the term "Grexit") doesn't think so, and he gives the chances of exit anywhere between 50% and 75%. That's as good as saying it's going to happen for sure, and a lot of the financial world (read: speculators) are of this opinion. They don't see how Greece still mired in debt and with a fast contracting economy can ever dig itself out of the hole's it's in. With 50% unemployment among its youth and the collapse of the welfare state (some 400,000 children are reportedly suffering from hunger), it is difficult to see how the so-called "seeds of dystopia" will not blossom in Greece.

Dystopia? Yes, that is where the Eurozone is headed. Look at this picture of a beggar, father of two hungry kids, in front of a supermarket:


You think that's Greece? Wrong, that's Italy! Near Perugia, in an area (Umbria) that not long ago was considered a perfect example of the "Italian Miracle". Have you forgotten the term? It refers to the boom the Italian economy experienced coming out of the Second World War and that seemed to go on for decades...Umbria until 2008 and even 2009 had survived the financial crisis and seemed to be doing very well, at least as well as the Germans, exporting its diverse luxury and artisanal goods to half the world. No more. A picture like this one is something I'd never thought I would see. The whole area used to be so prosperous, only a year ago! Shocking.

The crisis has hit here too, dystopia is on the march. Yesterday, in several Italian cities, people protested Monti's austerity measures and made ridicule of his (not very convincing) package of measures to stimulate growth.

Expect more protests across Europe.

Aren't the Germans aware of all this? Apparently not, even though much of their own youth is not happy with social policies that provide them with subsidized jobs (at €400 a month for the young worker and zero cost for the employer - all paid for by the State): young workers have learned that such jobs never lead to a career and that companies that have hired them never renew the contract. Rather than give them a chance, companies prefer to get another young worker at zero cost. That just makes good business sense!

There are really only two financial fixes: a banking union and Eurobonds. Both are difficult to get going (too many people involved) and Eurobonds in particular do not enjoy support from the Bundesbank. Indeed, the Bundesbank is dead set against them: not possible it says, unless we have a fiscal union with all Euro members relinquishing their authority over their national budget.

So, to solve the Euro crisis, we're back to politics. Everyone expects a lot from the end-of-June European summit, but what can German Chancellor Merkel do if the Bundesbank won't listen to reason? You'd think central bankers would be attentive to economic realities, but all they seem to be attentive to are their own balance sheets. This is a situation where the Germans could really bring down the European project.

People are fed up with austerity: they see that as measures to make them pay for the mistakes made by banks. Can you blame them?

One thing is certain: politicians in the Eurozone will need to listen more and more to what is happening in the street. In Greece, the new government (to be headed by the winning New Democracy's Samaras) will have to listen to the demands of whatever popular protest is orchestrated by Syriza (who, as of now, says it will stay in the opposition). It cannot afford not to do something to improve the lot of the average citizen - the famous 99 percent.

The time when the one percent  called all the shots is over (read: the speculators buoyed by the American credit rating agencies, Fitch, Moody's et al). Which is why I have hopes that the situation will get fixed - not immediately but over the medium term and maybe, just maybe, the Euro will be saved, and along with it, the European project.

I'm keeping my fingers crossed.
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