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Home Publications Blogs Beat the Press Germany Is Likely Concerned that a Greek Euro Exit Could Set an Example

Germany Is Likely Concerned that a Greek Euro Exit Could Set an Example

Thursday, 18 October 2012 05:01

A NYT piece that discussed negotiations between Greece and the "troika" over its budget deficit should have pointed out the risk to Germany and the other core euro zone from a Greek exit from the euro zone. The austerity policies demanded by the troika have led to 25 percent unemployment in Greece. With the economy projected to continue to contract for at least another year, the unemployment rate is almost certain to go higher.

By contrast, if Greece were to leave the euro and re-establish its own currency, it would experience a full-fledged financial crisis and a period of extreme disruption, but its economy would likely then bounce back quickly, as was the case with Argentina in 2002. The troika is undoubtedly concerned that if Greece were to follow this path it would set an example for Spain, which also has 25 percent unemployment, and possibly other crisis countries in the euro zone.

For this reason, the troika will almost certainly back away from demands if the Greek government proves unable to meet them. It does not want to risk a departure from the euro of one of the larger countries.   

Comments (4)Add Comment
written by xteeth, October 18, 2012 6:15
Lurking behind this fear is perhaps the understanding that the accumulated wealth of the rich depends upon an agreement that they have with the rest of society to honor their wealth. If the rest of society comes to think that that wealth is extreme or unjustified and just refuses to honor it, it disappears. As we have seen in several revolutions in the Middle East recently, there is no way to force a society to honor pledges either to respect leaders and government or to respect the extraordinary wealth of individual members of that society. I think it is about time that the megarich again realize that their position is getting weaker by the day. No worker in America has received a pay increase since the '70's. They have siphoned it all off to the point where the poverty rate makes it just about as rewarding to do nothing as to rebel.
written by jerry, October 18, 2012 11:00
It's a sick, sick game they're playing over there. What will the public reaction be here in the US, I wonder, when the austerity monster comes to town this winter?
written by Brett, October 18, 2012 11:18
This is why I think the Greeks should have forced the Germans to make a "bailout or leave" choice back after the first attempt at balancing their government's budget failed. When push comes to shove, support for the EU project is pretty strong in Germany, and they're very, very hesitant about something that could ruin it.

written by Fed Up, October 18, 2012 11:45
"The austerity policies demanded by the troika have led to 25 percent unemployment in Greece."

How about some "austerity" for the bondholders? Why not tax the bonds and the interest?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.