Greece flag George Panagakis/ZumaPress

Europe and Greece on the Brink

Greece would suffer from an exit from the eurozone, but at least it would regain the ability to devalue its currency. For Europe, however, the risk is all on the downside, with the possibility that the crisis could reverberate through the continent’s real economy.

CAMBRIDGE – A deal between Greece and its creditors might not happen. Several factors are in flux; Greek and northern European interests are not aligned; and personal animosities are in play. For Greece, an exit from the euro would not be easy, but if the alternative is endless austerity without debt forgiveness, its government may conclude that leaving the eurozone is the better choice.

Germany, for its part, would prefer to avoid a Greek exit – a position that Greek Finance Minister Yanis Varoufakis seems to have been banking on. But the German public largely wants to punish Greece, and German Chancellor Angela Merkel does not want to set a precedent for recurring bailouts of the European Union’s weaker members.

Failure to reach an agreement would be painful for Greece, which would face chaotic economic conditions. But an exit from the euro would also provide its government with new options – most notably, the ability devalue its currency to make its exports more competitive. For the rest of Europe, however, the risk is mostly on the downside, because beyond the obvious losses that would be incurred if Greece does not pay its debt to European governments and international institutions, there is the wider worry that the crisis could reverberate through the continent’s real economy.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/t80L4RF;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.