Bloomberg: Three Potential Scenarios on Greece’s Problem



euWith the Greek government running out of cash by the end of April, Bloomberg speculates on three potential scenarios on the outcome of negotiations between Athens and creditors.

With the word “Grexit” looming large after the new, leftist SYRIZA government was elected, Bloomberg interviewed economists, investors and former policy makers and presented the following possible scenarios:

* 1) Grexit avoided

Greek Prime Minister Alexis Tsipras  backs down in negotiations and accepts the austerity reforms proposed in order to keep financial aid coming. The European Central Bank opens the liquidity tap and Greece breathes again.

However, Tsipras’ win was based on a campaign promising the end of austerity and strict supervision of lenders. If he accepts the new austerity deal, many of his hardline party members will mutiny and SYRIZA voters will revolt. A new coalition government may be formed with Tsipras at the helm along with pro-Europe political forces. Or, elections are called.

Then Greece secures its place in the euro zone and the government gets more loans with leaner repayment plans and economy kickstarts again.

* 2) Greece stays in euro zone, but has a special standing 

There are two sub-scenarios here, one called the “Somersault”, meaning that Tsipras changing course, and the other is called “Checking out,”

a) Somersault

The Greek government has imposed capital controls and Tsipras is forced to compromise as the majority of Greeks want the euro currency “at any cost.” Tsipras is forced to make a coalition with pro-European parties. A referendum is called amid capital controls and with banks shut. The Greek leader forms a unity government, Greece stays in the euro zone but recession is not avoided.

b) Checking out

Harsh economic conditions create popular uprising and Greeks swing in favor of leaving the euro zone.

The government has the freedom to print either a new currency or IOUs for domestic payments. The economy is still weak and faltering. Europe gives more loans to Greece so that the failing of a state in a strategically critical location is avoided.

Greece is at the control of its creditors since it cannot go to international markets to borrow. Many Greek companies and banks default. The new currency circulates along with the euro. The country has not officially left the euro and can return when in good standing, but this is very difficult since the economy remains in a hellish condition.

* 3) Catastrophe

Greece leaves the common currency bloc in a messy default amid social unrest and general poverty. The government blames everything on the Germans.

The country gets no help to keep servicing state bonds and the International Monetary Fund. That triggers cross-default to all creditors. Banks collapse, the government falls and Greece goes into depression.

Yet, Greece’s default  drags with it vulnerable countries such as Italy and European economy receives a near-catastrophic blow. Global markets are shaking as well. Greece ends up leaving the European Union altogether, extremists of the left or the right take power and those who can, flee the country.

After that, the Greek membership in NATO is questioned and the new government turns to Russia for support, giving Vladimir Putin a much-coveted outpost in the Mediterranean, the Bloomberg article concludes.


2 COMMENTS

  1. “extremists of the left or the right take power”

    Too late. Extremists on the left have already taken power. Even alleged “right” ANEL has bizarrely formed alliance with Marxist Syriza.

    Long forgotten by alleged “moderate” leftists during the civil war Greeks used to shoot communists for their treasonous attempt to detach Macedonia from Greece as well as trying to make us part of the tyrannical iron curtain. Today communism is mainstream in Greece. Our current government ridiculously and dangerously subscribes to Marxist economics despite decades of empirical evidence that not only does communism not work but it’s brutally oppressive.

    There were two great evils of the 20th century. Fascism and communism. Vis-a-vis their voting choices last election… nearly half of Greeks now effectively subscribe to these evil ideologies.

  2. Catastrophe will be limited to Greece alone. Other countries, Portugal, Italy, Spain, & Ireland have pulled away from Greece. In any case, they will be supported by ECB & Germany b/c they stuck with the program.

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