Post Referendum, Greece Will Not Leave The Eurozone 

Summary

• Even after the large victory of the “No” at the referendum, Greece will not leave the Eurozone.
• This is certainly the reason why financial markets kept a relatively cool head in the turmoil of this Monday.
• Let’s dig into the reasons why the Grexit will not happen, even now.

It’s too late to fail:

It’s been more than four years since Greece, more than any other country, is financed by the so-called Institutions. The country has applied a very tough set of spending cuts and has increased its income rates. This “remedy” led to a contraction of the Greek economy by more than 20% since then. On the flip side the Greek budget (that still need to be funded by the Troika) offers now a primary surplus. That makes the additional measures that the Institutions want less necessary today. Moreover, kicking out Greece from the Eurozone would suppose giving up a significant part of the 230 Bn € that were lent to the country. It would be a very bad financial calculus for the Institutions.

A Grexit would be catastrophic for Greece:

Greece imports a lot. Even if the Hellenic Republic has reduced its trade deficit by more than a half since 2008, it is still in deficit by more than 20 Bn €. If we imagine the country out of the Eurozone, it would necessarily have a weaker currency which means a larger deficit. A Grexit would start a new era for the country where the complicated situation would turn much more problematic! Angela Merkel was the first to mention a humanitarian aid to Greece that would become a necessary if it is kicked out. It would be useless to change the name of the funding from bail out humanitarian aid. It would also be very dangerous for Europe to let starvation threaten a country that is so close. On the other hand, this would take the Eurozone from an expansion era to another one, with an uncertain future.

Europe would lose its political interference in Greece:

If Europe and Greece get to divorce, there would be a winner: Russia! As a big country, it can afford to help Greece (a ten times smaller economy), especially now that most of the work has been done by the Troika… The meeting between Alexis Tsipras and Vladimir Putin on June 19th was the first step to an agreement on building a Russian gas pipeline in Greece. The Russian leader would be open to any kind of political allegiance from this Mediterranean country in exchange of its help.

What makes European leaders so inflexible in the course of the negotiations?

European rulers don’t want to push the Greek people to the limits, but they want Alexis Tsipras to fail, in a way or another! His failure is necessary to help the ongoing radicalisation of the political spectrum stop in their own countries. Otherwise, parties of the extreme left and the extreme right would feel themselves affirmed by the Greek radical experiment and could come to power in Spain, Portugal and even France, among others.

What could eventually happen?

A solution at this point could be to give the agreement a symbolic change and impose it to the Greek people as a “take or leave” proposition. It would not be very democratic, but there is no room left for those kinds of concerns. As it happened to the European Constitution, refused by referendum in Ireland and France and adopted by parliaments in the Lisbon Treaty version, the vote of the people could simply not be so decisive in this case.

Mehdi Zarrouky

Source: Seeking Alpha – Post Referendum, Greece Will Not Leave The Eurozone

---