As the Eurozone crisis progresses, would a Greek exit lead to a break-up of the euro?
YES
Jason Gaywood
The overwhelming likelihood is that Greece will be forced to leave the euro. A stand-off between Angela Merkel and anti-austerity parties in Greece creates a difficult conundrum – if the EU stands firm and Greece defaults, its ejection from the euro will lead to contagion risk. Other members, like Portugal, Italy, Ireland and even Spain could follow in quick succession, spelling an ugly end to monetary union. The other outcome would be a relaxing of Greek terms, leading to demands from Ireland for similar concessions, and significantly increasing the likelihood that other member states would seek external support. In this situation, the European Stability Mechanism, which extends to some €500bn, wouldn’t be big enough to save the euro. I think that Greece will now be forced to leave. Who else would follow is speculation, but certainly Portugal, Italy, Ireland and now even Spain, look likely to be close behind. Jason Gaywood is a director at HiFX, the currency specialist.
NO
Thanos Papasavvas
An exodus of Greece from the Eurozone would be disastrous for the country, partly because the spike in imported prices from the new devalued currency would hit the poor most and generate even worse economic conditions than the ones experienced over the past few years. However, Greece’s exit from the Eurozone would not necessitate a breakdown of the euro, nor definitely lead to other countries exiting. Greece is an isolated case whereby the underlying issues were not only economic but also political and social. One can only hope that the Greek people realise ahead of next month’s elections that the consequences of their voting actions will mean an exit from the Eurozone. They cannot afford to have any false hopes and naïve expectations of significant changes to the agreed austerity programmes.
Thanos Papasavvas is strategist, fixed income and currency, at Investec Asset Management.