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article imageOp-Ed: Greek markets plunge as Grexit appears more likely

By Ken Hanly     Feb 1, 2015 in Politics
Athens - German chancellor Angela Merkel has ruled out any write off of Greek debt, claiming that banks and creditors have already made substantial cuts. At the same time she insisted that she wants Greece to stay in the Eurozone.
Alexis Tsipras, the new Greek prime minister, campaigned on promises that he would negotiate a reduction in Greece's debt load and lessen the burden of austerity conditions imposed upon Greece by the three EU lenders, the Troika. The finance minister Yanis Yourafakis even rejected any negotiations with the Troika. It seems crystal clear that if both sides keep to their positions, a Grexit appears the only solution with Greece defaulting on its debts and exiting the euro zone and returning to its own currency the drachma.
Syriza appears to be playing some elaborate game as part of renegotiating bailout terms with its creditors. Greek prime minister Tsipras, is negotiating through talks with various EU leaders especially those from Italy, and France who may be sympathetic to his idea that the whole approach to debt should be changed. This is a view not only held by liberal economists such as Paul Krugman, and Joseph Stiglitz but even more conservative officials. Mark Carney, Governor of the Bank of England and former governor of Bank of Canada, also criticized EU policy as creating a "debt trap" for some countries, exactly the situation facing Greece. In Germany, on the other hand, prestigious economic researchers, staunchly defend Germany's austerity policies.
Syriza seems to alternate statements that shock with soothing remarks subsequently. After Varouflakis' bombshell announcement that he would not negotiate with the IMF, Tsipras chimes in to assure creditors that Greece will pay all its bills: “My obligation to respect the clear mandate of the Greek people with respect to ending the policies of austerity and returning to a growth agenda, in no way entails that we will not fulfill our loan obligations to the ECB or the IMF,” Tsipras said, which was reported by Bloomberg. If Tsipras will meet all Greece's loan obligations how can debt be written off? Greek markets are not paying any attention to whatever game Syriza is playing. It is simply plunging, perhaps because players see this whole affair ending in a Grexit.
So far this year, the Greek stock market is down over 36 per cent. Many fear contagion in the event of a Grexit in spite of the fact that officials in Germany along with their research supporters say that exposure to Greece is limited and will have limited effects if there is a Grexit. This article claims that a Grexit would weaken the euro and create a precedent for the region:The European economy is the largest middle class economy in the world. With over 400 million relatively affluent consumers it represents a massive portion of the net global economy and as such a breakup of part of it would be felt across the world in credit spreads and capital decisions for years to come. This would not have been because of Greek exit, but rather because of the inability of the authorities to manage the crisis as risks initially built up, then as bail outs were designed and implemented and then as these efforts surely failed.
The article goes on to claim that EU officials bailout policies have been an epic failure in terms of planning, statecraft, and social justice. Syriza is trying to take advantage of this situation to renegotiate policies along with other European allies.
Four major Greek banks: Bank of Piraeus, Alpha Bank, National Bank of Greece and Eurobank all closed 25 percent lower the other day. The Athens stock exchange dropped 6.4 percent. In just three days Greek banks lost 40 percent of their value, after Syriza won the elections last Sunday. Withdrawals of deposits have accelerated. The liquidity provided by the European Central Bank could be completely cut off. Profits are low, and there is the possibility of both public and private debt restructuring. Just in the last two months deposits have fallen 5 percent even as up to 8 billiion euros in deposits have been withdrawn since last November. Nikolaos Panigirtzoglou of JP Morgan claims that 350 million euros was sent out of Greece to Luxembourg money funds since the start of last week. He estimates that up to a tenth of Greek deposits have already left the country in 2015. The demand for gold in Greece is increasing as Greeks look for ways to preserve their wealth. Greeks apparently favor storing gold in Switzerland.
Tsipras no doubt thinks that the Germans are bluffing and that a Grexit is more feared than renegotiation of debt. German Finance Minister, Wolfgang Schaeuble, claims that a Grexit will cause little damage to the rest of Europe: “In contrast to 2010, the financial markets have faith in the eurozone. We face no risk of contagion, so nobody should think we can be put under pressure easily. We are relaxed.” The response of markets to all this Monday morning will be of interest. So far Syriza has not even discussed what it would do should the Grexit take place. Maybe this is itself part of their plan.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
More about Grexit, euro zone, Troika demands, greek debt crisis
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