Beating Grexit

Thriving, Not Just Surviving

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The euro has so far defied any expectations that a Grexit heralds its own demise.
  • Why it matters

    Why it matters

    Germany is gambling that markets will view a Grexit as a blip in the euro’s history rather than the beginning of the end for Europe’s common currency.

  • Facts

    Facts

    • The euro has held its ground against the dollar since the weekend referendum.
    • Most bank economists around the world now consider a Grexit the likeliest option, but are more divided on the consequences.
    • German policymakers have been increasingly insistent that a Grexit may now be the best option – for Greece and for the remaining euro nations.
  • Audio

    Audio

  • Pdf

 

It’s perhaps the most baffling of all the developments these past few weeks on Greece. While headlines of economic doom and gloom have dotted the global media landscape as the Mediterranean country flirts with becoming the first nation to leave the euro, financial markets have barely batted an eyelid.

It could mean that the euro zone would not only survive but actually thrive without Greece.

The value of the euro against the dollar has held steady this week at around €1.10, even as many market analysts became increasingly convinced following Sunday’s referendum that a Greek exit, or Grexit, is the most likely scenario facing Europe. Borrowing costs for other weaker European countries like Italy and Spain have risen slightly but remain low. Most economists also expect the euro zone’s economy to continue growing, even if Greece plunges further into the abyss.

It’s a far cry from 2012, when the possibility of Greece leaving the euro infected the economies of its European neighbors like a virus that could only be stopped at its core – by bailing out Greece and keeping it inside the common currency.

The fact that market sentiment is different this time around plays very much into the hands of German Chancellor Angela Merkel and other Berlin politicians, many of whom are determined to play hard-ball with Greece and refuse to grant the country a third financial bailout unless it commits to the kind of tough structural reforms and austerity that its current left-wing government rejects.

The euro, many here in Germany argue, could actually emerge stronger from the crisis if it finally allows Greece to quit the 16-year-old currency bloc altogether.

“Over the long-term, the euro should profit from a determined stance by its institutions,” Ulrich Leuchtmann, senior economist with Commerzbank, Germany’s second-largest bank, told Handelsblatt this week.

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