Greece already has left the eurozone. The formality of the paperwork is only a few months away, at most. The notion it can remain in the alliance is based on the fantasies that either the political parties that have gained strength in Greece, through their objections to austerity, will suddenly embrace existing cost cuts or that Germany will agree to a renegotiation of Greece’s bailout terms. Neither has any chance of occurring.
Several research firms and investment banks currently put the chance that Greek will strike out on its own at 50% to 75%. Those figures are optimistic and reflect more hope than reality. Alexis Tsipras of the leftist Syriza party has been given close to a mandate by voters. He says that Greece has had its back pinned to a wall by its financially stronger neighbors. He hopes to create a coalition of other political parties that largely will support his view. That probably will not happen. Another round of elections will begin and, based on the results of the latest election, Syriza and other groups that have rejected austerity are highly likely to gain more power. The formal repudiation of government cost cuts will come before the end of summer.
A number of economists have argued that if Greece leaves the eurozone, the financial results will be catastrophic. The global capital markets smart money does not look at it that way. There has been no panic about contagion. Investors appear to see the trouble in Spain, Portugal, Ireland and Italy as problems that have to be solved by those countries alone, and not because they are hostage to contagion. And, probably, investors look at Greece as too small to matter. Whatever the reasons, the discussion that Greece could ruin the eurozone by its actions is no longer very loud.
Greece has become isolated because of a lack of support from Germany for its desire to renegotiate terms that were final only a few weeks ago. And the European Union has raised enough money, along with larger IMF funds, so that investors believe Portugal and Spain will not be battered by a Greek withdrawal.
Greece already has walked away from its eurozone membership. All that needs to happen now is an official acknowledgement of that fact.
Douglas A. McIntyre