Early Greek default now inevitable
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The withdrawal of the far-right LAOS party from the Greek coalition government and the resignation of two junior ministers from the socialist PASOK party now makes it increasingly likely that Greece will default on its debts and leave the euro, possibly within days.
As the latest phase of the Greek crisis has dragged on, it has become increasingly apparent that this time it's for real. Unlike earlier phases, which frequently had an almost ritual quality to them, the shadow-boxing is over. At some stage over the next few weeks, maybe just days, matters will come to a head, Greece will default on its debts and the country will either leave or be ejected from the euro.
There are a number of reasons for this. Simple exhaustion is one. The Greek crisis has dragged on since October 2009, 28 months, with no resolution in sight. There comes a time in every long-running crisis when fatigue overcomes the participants and the urge to reach a conclusion, no matter how unsatisfactory, becomes irresistible. We're very close to this point, if indeed we haven't reached it already, in the Greek crisis.
But that's only a partial explanation. There is also the fact that Greece should never have been allowed to join the single currency in 2001. Indeed it only secured entry to eurozone by cooking the books, a fact that only came to light eight years later. Greece was, and remains, a totally unsuitable candidate for membership of the single currency.
To further complicate matters, it is now quite clear that Greek public support for the austerity measures being demanded by the EU/ECB/IMF troika as a condition for handing over further bailout funds is rapidly evaporating.
With elections due in the spring the Greek political parties are paying more attention to boosting their electoral prospects than they are to propping up the increasingly unpopular government of Prime Minister Lucas Papademos -- who was effectively installed by the troika last November.
Finally, even if Greece were to fully comply with the demands of the troika, there is growing evidence that the severe economic medicine it is prescribing is more likely to kill than cure the patient. Even on the most optimistic forecasts Greece would still have a crushingly high debt/GDP ratio of 120pc in 2020.
That's the bad news. The good news is that new ECB president Mario Draghi has done more to erect "firewalls" to protect the rest of the eurozone from the consequences of a Greek default than his predecessor Jean-Claude Trichet did in the previous two years. The eurozone is now much better positioned to absorb any Greek shock.
And guess what? Contrary to many predictions, a Greek default and eurozone exit wouldn't be the end of the world. Most banks and other investors have had the time to prepare for such an eventuality. For Greece, a default and devaluation early in the year would restore competitiveness to its embattled tourist industry in time for the peak summer season.
With a Greek default and departure from the euro now inevitable, we can only repeat the words of Shakespeare's Macbeth: "If it were done, when 'tis done then 'twere well it were done quickly."
Irish Independent
