Greece vs Europe: who will blink first?
“The eurozone stands on the brink of another crisis as Athens confronts Brussels and Berlin” - By Ambrose Evans-Pritchard, The Telegraph (London)
Summary Below by Anthony O'Brien
There is a whiff of 1914 to the latest Balkan showdown. Everybody thinks everybody else is bluffing, all of them betting that a calamitous chain reaction will be averted.
In Germany, Der Spiegel reports that Angela Merkel thinks Greece can be ejected safely from the euro, if the rebel Syriza party wins the elections on January 25 and carries out its pledge to tear up Greece’s hated “memorandum” with the EU-IMF.
As a result of this crisis, the head of the European Central Bank (ECB), Mario Draghi, is caught in a horrible bind.
He is itching to kick off a trillion-euro blast of quantitative easing on January 22. To make any difference, however, this must entail the purchase of sovereign debt. Yet Mr Draghi can hardly agree to buy Greek bonds three days before the likely election of a party that has vowed to repudiate that same debt.
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Frequently Asked Questions about this Article…
The crisis revolves around Greece's potential exit from the eurozone, especially if the Syriza party wins the elections and decides to reject the existing agreements with the EU and IMF.
If Greece's Syriza party wins and follows through on its promise to reject the EU-IMF memorandum, it could lead to Greece's exit from the eurozone, potentially triggering a broader financial crisis.
The European Central Bank, led by Mario Draghi, is considering a significant quantitative easing program. However, the ECB faces a dilemma as it cannot easily purchase Greek bonds if Greece's new government plans to repudiate its debt.
Quantitative easing is crucial as it involves purchasing sovereign debt to inject liquidity into the economy. This could help stabilize the eurozone, but its effectiveness is uncertain if Greece defaults on its debt.
A Greek exit could lead to financial instability in the eurozone, affecting investor confidence and potentially causing a chain reaction impacting other economies.
Reports suggest that German Chancellor Angela Merkel believes Greece can be safely ejected from the eurozone, indicating a readiness to face the consequences of such a move.
The elections are significant because the outcome could determine whether Greece remains in the eurozone or exits, depending on whether the Syriza party wins and acts on its promises.
Investors are closely watching the situation, as the outcome could have significant implications for the stability of the eurozone and the broader European financial markets.
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