Reuters reports that all latest developments on Greek debt crisis has revived doubts about the long-term survival of the euro, nowhere more so than in London, Europe’s main financial center and a hotbed of Euroskepticism.
According to Reuters Greek default and/or exit comes just as there are signs that the Eurozone moves on despite the Greek issue after seven years of financial and economic crisis.
The article continues by presenting skeptics views on SYRIZA government. To them the election of a radical leftist-led government in Athens committed to tearing up Greece’s bailout and looks like the start of an unraveling of the 19-nation currency area, with southern countries rebelling against austerity while EU paymaster Germany rebels against further aid.
A last-ditch deal to extend Greece’s bailout for four months after many clashes between Athens and Berlin did little to ease fears in the Eurozone, states Reuters.
Further, Reuters cites statements of U.S. economist Milton Friedman’s aphorism stating that “What is unsustainable will not be sustained”.
Countries that share a single currency cannot devalue when their economies lose competitiveness, as occurred in southern Europe in the first decade of the euro’s existence. There is no mechanism for large fiscal transfers between member states.
So the only option has been a wrenching “internal devaluation” by countries on the periphery of the euro area, involving real wage, pension and public spending cuts and mass unemployment that has caused deep social distress.
Austerity has fueled radical forces of political protest and may be running out of democratic road not just in Greece but none of the alternative ways out of the Eurozone’s economic divergence dilemma looks remotely plausible.
The European Central Bank has acted at key moments to hold the Eurozone together, vowing in 2012 to do “whatever it takes” to save the currency and now launching a massive program of buying government bonds to spur the economy and avert deflation.
ECB action can only buy time for governments to implement structural economic reforms that could close the competitiveness gap by raising potential growth over time.
In conclusion the article supports that a Greek default or exit from the Eurozone whether by “Grexident” or intention could shatter that returning trust, even though Athens accounts for just two percent of the bloc’s economy. So Greece’s fate remains entwined with the euro’s survival.
