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Euro Crash: Why's Greece About To Exit Eurozone Taking Euro With It?

euro-crash

Pay close attention to Greece now.

  1. No austerity for posterity as the anti-bailout Syriza party extends its lead in the polls just before elections in Greece on Sunday.
  2. Whilst the Greek people are warned that a Syriza win may risk Greece leaving the euro, that's the only hope for the average Greeks feeling disenfranchised by the Greek economy.
  3. Syriza’s rise is fuelled by professors-turned-politicians who are in no mood to appease the large debt and austerity enforcers: the IMF, the ECB and the EU.
  4. Syriza victory in Greece could lead to 'economic chaos' within Greece as promises to reduce the debt burden by 50% cause a rapid Grexit from the eurozone.
  5. The cascading ripples across the euro zone are likely to cause the single currency to collapse further in value against the dollar and other hard currencies just as it is already in free fall because of the 1.2 trillion euro money printing -- quantitative easing -- announcement by the ECB this week.
  6. Step by step a number of central banks and multi nationals may reduce their euro holdings as the purchasing power of the euro declines rapidly in the aftermath of the adverse Greek elections result.
  7. Large scale global selling of the euro could yet precipitate a run on the euro which may then fall well below parity with the dollar.
  8. There comes a point in any currency's price cycle where its value falls to a point from where it becomes difficult to recover. This is even more important in the case of a global reserve currency such as the euro.
  9. In the coming days, possibly weeks, the euro may fall in value to a point of no return.
  10. At such a point, the euro currency could simply implode in terms of lost global confidence unless the ECB swiftly begins to tighten monetary policy?

[STOPS]

What are your thoughts, observations and views?  We are keen to listen and to learn.  Please add your comments below.

DK Matai

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Comments (4) -

  • Robert Woodthorpe Browne

    25/01/2015 10:57:12 |

    I am not nearly so pessimistic

    Greece only represents 1.5 pct of the Eurozone GDP

    Greeks want to have their moussaka and eat it.  They want to stay in the EuroZone by a big majority, but want debt forgiveness.

    Merkel etal will agree long term extension of loans.  Interest rates already low.  Money owed to Central Banks and International funds such as IMF, so impact on non-Greek banks negligible.

    Tsipras has already trimmed his rhetoric.  Hope he doesn't re-hire all of the redundant civil servants who were fired.  Would wreck any negotiations which have to be based on a viable financial and economic plan for the Country

    Of course, I could never understand why they were allowed in the EC, let alone the Euro, but that is yesterday and the day before

  • Elizabeth Marshall

    26/01/2015 11:37:38 |

    I think we are facing a geopolitical as well as geo-economic crisis in the EU. The crisis has again surfaced because of the failure to achieve financial reform after the 2008 crash. Quantitative easing is not the solution, nor could it ever be,nor is extending the EU to yet more poor countries to include Ukraine !! None of the poorer southern countries can compete when pegged to the euro and the debt in Greece has only increased in the past 5 years, despite the austerity.Further extensions will not improve this situation. Greece may well be driven to default and bow out of the euro.Spain and Italy may follow. It could be better for all involved if this was the case and countries regained their economic sovranty.

  • John Chown

    26/01/2015 15:23:52 |

      This is a very interesting paper and I agree that there could be an irreversible collapse of the euro as a currency. There are however other scenarios.
      This is very much my subject and as a long-term watcher of the euro project, I knew by 1995 that it was a disaster waiting to happen, and predicted it would come to a sticky end. We in the UK spent a lot of time talking about the best way for it to end. What should have happened then, was some controlled and coordinated devaluations and defaults. There is an obsession with preserving the Eurozone and “what it takes” could well have involved destroying the European Union. Patchwork measures seem to be unrealistically accepted by markets but I believe this will be the last straw.
      Grexit is not necessarily a standalone and might well be followed by a substantial withdrawal of funds from other problem countries and their forced withdrawal from the Eurozone. The surviving inner group might take steps towards more of a fiscal union and all this could actually strengthen the euro.
      A better (but highly unlikely) solution would be for Germany to reintroduce its own currency. Other countries could then shadow this without having any influence on Bundesbank policy, rather like the old Sterling Area. Others could float, or shadow at a devalued rate possibly with a partial default. This raises all sorts of interesting questions.
      Competent economists were working on the EMU project,  but  the decisions were clearly political, taken mainly by those ignorant of the eventual economic consequences. There appeared to be others who, understanding, went ahead with the hope and intention that it would have to lead to a fiscal and political union which could never have been achieved by open democratic process. We did not know who was who. However, recently reviewing, for Central Banking, a revealing book on Lamfalussy I quoted from an earlier review of a book by Harold James who, I said, “has told us that during the two previous attempts at Monetary Union – the ‘Snake’ and the ‘Exchange Rate Mechanism’ (ERM). all the issues that should have been considered on the launch of the Eurozone were discussed at length in far more detail, and even more acrimony. I said in my review that we would have to wait many years to learn what has been happening behind closed doors.”
    Now we know.

  • Roberto Gumucio

    26/01/2015 20:29:10 |

    Agree in basics with the comments posted here, due to a very simply matter, the Euro agreement from the economic point of view is a NOT LOGIC ONE, same pretends that countries with VERY DIFFERENT economic development have the same rights ? from any point of view that is illogic, is like having in the same league, professionals and amateurs, John said it correctly, was a political and not an economic decision.
    Unfortunately do not have the numbers, but will like that somebody from the Euro economic team answer me the following. Considering the Greek yearly exports, how many years it will take them to pay what the owed today......, that is without acquiring new debt, point very well express by Elizabeth, given more loans to them will only increase the EU problem
    Do not understand  countries like Greek and other similar have been accepted in the EU, agree in this point with Robert, that of course under the economic point of view.

      

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