Counterparties: Pondering a Grexit
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Europe’s “slow motion trainwreck” – Nouriel Roubini’s words, not ours – now looks increasingly like it’s coming closer to a halt for Greece.
After elections last week, the Greek left has been unable to form a coalition, and the country may be forced to have yet another election. Greece’s left is refusing to join a coalition with any party that supports austerity, which puts the country in an extremely tough position between euro zone-led economic goals and mass dissent. The BBC’s Paul Mason, who suggests that “to be in power [in Greece] is to commit political suicide,” puts the predicament this way:
[Greece] cannot stay in the Euro without abiding by the rules. And the rules, as currently designed, will force the economy into a downward spiral and destroy social cohesion.
As a result, pundits are once again handicapping a Greek exit from the euro. Citi puts the probability at 75% within 12-18 months, Credit Suisse at 15% within the year, while John Taylor thinks Greece is “very likely” to leave the euro this summer. And Roubini still thinks the euro zone cannot hold together and that a bailout for Spain is next. (For a simple background on the sovereign debt crisis that is fueling the pessimism, this St. Louis Fed presentation is worth reading.)
The anti-austerity movement’s fresh validation at the polls has pushed the rest of Europe, or at least the Germans, to adopt an increasingly weary and fatalistic tone toward Greek politicians who oppose austerity. The message is that Germany is done bargaining, although the extent to which it ever did is debatable. German Finance Minister Wolfgang Schaeuble put it bluntly: “If Greece decides not to stay in the euro zone, we cannot force Greece … They will decide whether to stay in the euro zone or not.” For context, while Greeks are anti-austerity, they want to stay in the euro.
Of course, what Germany and the rest of the euro zone can do is withhold the next installment of promised aid. Earlier today, German ministers warned Greek politicians that any deviation from austerity would mean forfeiting that aid. It’s worth remembering that while all this is going on, Germany, along with the UK and U.S., has in the short term seen borrowing costs fall as Europe’s debt crisis continues.
But, for now, we’ll make do with a bit more can-kicking: Today, euro zone governments decided to deliver the next $6.7 billion tranche of aid. – Ben Walsh
On to today’s links.
Food stamps may soon support more families than unemployment insurance – NYT
CHART: Consumer credit, minus student loans, looks rather grim – The Big Picture
The unemployment rate would be 7.1% without government job cuts – WSJ
Rortybomb destroys David Brooks on structural unemployment – Next New Deal