Is Greece still viable for the Eurozone?
What’s next for Greece?
Faced with record debt levels and a dwindling economy, Greece is gradually becoming a financial pariah in the European monetary zone. For the past few weeks, capital markets have not seemed convinced one bit about the feasibility of the mix of measures taken by country leaders.
What’s even more flabbergasting is that many Euro countries are not willing to lend a helping hand to their counterpart even though many economists posit that, absent an external macro-intervention, Greece will unquestionably fail and such a collapse will be followed by a dire domino-effect on other peripheral economies such as Italy, Spain and Portugal.
Greek authorities don’t have a panoply of good options but the sad truth is that they seem to be losing the PR game to market ‘ill-wishers’, that is, short sellers! Short sellers are traders who bet that the price of a security will fall and thus sell it when such price is still high.
European markets haven’t so far responded well to Athens’ actions and believe Prime Minister George Papandreou needs to act more boldly in tandem with ECB and other Eurozone leaders to assuage concerns of a default. The quintessential fear of European Union founders – the nightmarish scenario where a few countries sabotage growth within the rest of the Union – is alas taking shape.
What options Athens really have? They need to manage their record debt levels by assuaging market scare and putting the country’s economy under control. That means fiscal tightening, which in turn will spark social unrest amidst an already recession-saddled economy.
A bailout from the ECB would also damage Greece’s reputation within the union and also vis a vis financial markets. Ditto for some “structural loans” from other more solid economies like Germany or France. What about exiting altogether the Eurozone and go back to the ‘good ole’ drachmas. Unthinkable!