WHY A GREXIT MUST BE AVOIDED / DER SPIEGEL

07/10/2015 06:10 PM

Opinion

Why a Grexit Must Be Avoided

A Commentary by Mathieu von Rohr

 

Europe is preparing for a Grexit and German voters would like to see the country leave the common currency regime. That, though, would be the wrong move. A Grexit must be avoided at all costs.

Anyone who opposes the prospect of a Grexit can feel a little lonely in Germany these days.

Indignation over the Greek government is widespread and the seemingly endless rounds of debt talks have left the public drained. A Grexit seems to promise release and is looking increasingly appealing to many.

But were Greece to leave the euro, the consequences would be disastrous -- for Europe, for Greece and indeed for Germany. It wouldn't be long before we would regret the day. Far more is at stake than just a few billion euros -- which are most likely already lost, anyway.

A Grexit would mark the end to the process of European integration; the euro would be destabilized as a currency; the EU would be geopolitically undermined.

After five years of Greece topping Europe's agenda, its exit from the euro zone would amount to a monumental failure for the bloc's leaders. Greece would be condemned to hardship and cast adrift from Europe.

The euro zone might be more robust now than it was five years ago, and the fallout from a Grexit might prove less severe than predicted in 2010. But at this point, no one yet knows what exactly the consequences would be, as there is no precedent. Whether it proceeded in an orderly or a disorderly way, a Grexit would be a dramatic event. And, indeed, an expensive one, costing Germany up to €60 billion. An additional humanitarian aid effort worth billions would be required, as would debt relief.

More than a Currency

But first and foremost, a Grexit would spell disaster for Europe. The euro is more than a currency. It was designed by its founders as a vehicle for Europe's political union. So if Greece is to leave the euro, it first needs to leave the EU. The bloc's goal is to promote an ever closer union between its member states -- but this is a process that a Grexit would reverse.

The euro would be left looking like a currency union that's unfinished, vulnerable -- and easily undone. A Grexit would also set a precedent. As soon as the next downturn were to come, markets may begin speculating against countries like Spain or Italy.

Across the Continent, the euro crisis has helped to bolster populists. They point to Germany's dominance and the Greek example as evidence of how Brussels ruthlessly rides roughshod over the will of the people. A Grexit would be grist to the mill of parties such as Front National in France and und Podemos in Spain.

It would also amount to a geopolitical failure. Europe aims to be the world's third power bloc, ranking alongside the US and China. But if it can't resolve a minor issue such as the Greece problem, even after years of deliberations, how can it expect to be taken seriously? Who would still have faith that it could ever sort out its problems with refugees or the Ukraine conflict? A Grexit would reveal the cracks across Europe and leave it looking highly exposed -- not least vulnerable to the likes of Vladimir Putin, who would waste no time hijacking Europe's treatment of the Greeks for propaganda purposes and seeking closer relations with them for strategic purposes.

Were Greece to be forced out of the euro, it would be an angry, humiliated, economically destroyed and politically destabilized nation. Its government would probably not have much love left for the EU. Greece would, however, remain a member of NATO -- one strategically well-located on the Mediterranean. More refugees arrive on the shores of Greece than anywhere else in Europe.


A Third Bailout

The weakest argument of the pro-Grexit camp is that a return to the drachma would help Greece. A Grexit would plunge the country further into economic turmoil, which no amount of humanitarian aid would be able to compensate for. A devalued new currency would be of little help to the Greeks because they only have a tiny export sector. Imports would become prohibitively expensive, the population would descend further into poverty, businesses would go bust, inflation might spiral out of control. All of this would be catastrophic for a country that has seen a 25 percent drop in its economic output since 2007.

A Grexit must not be allowed to happen if it can be avoided in any way, and it certainly should not happen just because European leaders are angry and tired of the Greeks. This does not, of course, mean that a Greek government that has severely tested the nerves of many in Europe should be allowed to get away with whatever it wants. But a Grexit can only be a last resort, an option to be considered only if all else fails. Thus far, though, not all the other options have been fully explored.

What's needed now is a deal for a third bailout package in return for strict reforms and debt relief, as urged by the International Monetary Fund. Over the years, Angela Merkel has accumulated a vast amount of political capital. She has the trust of the German public. She has rarely dipped into this capital to make unpopular decisions. It is time she did so.

Angela Merkel must show she can be statesmanlike and reach a deal -- even as her own electorate would prefer to be rid of the Greeks completely.