Friday, May 18, 2012

Europe: Rupture Increasingly Likely

The Lehmann Letter (SM)
If Alexis Tsipras heads the next Greek government, a rupture with Europe seems increasingly likely.

Will Europe survive?

Consider two stories in today’s press.

Begin with this headline in The Wall Street Journal:
Defiant Message From Greece

The important passages are:

“The head of Greece's radical left party—throwing down a gauntlet that could increase tensions between Greece and its frustrated European creditors—said he sees little chance Europe will cut off funding to the country but that if it does, Athens will stop paying its debts……

“Our first choice is to convince our European partners that, in their own interest, financing must not be stopped," Mr. Tsipras said in an interview with The Wall Street Journal. He said Greece doesn't intend to take any unilateral action, "but if they proceed with unilateral action on their side, in other words they cut off our funding, then we will be forced to stop paying our creditors, to go to a suspension in payments to our creditors."

Looks like he means business. But so do the other European leaders.

Go to this headline in The New York Times:

A Greek Exit? Euro Zone May Be Ready

Here are the key excerpts:

“It is increasingly conceivable that Greece may leave the euro zone, not just because of its own political dysfunction but also because the consequences of such an exit for the rest of the Europe and the global economy no longer seem quite so scary.

“The foot-dragging and brinkmanship of the last few years have won the other members of the currency union valuable time to prepare for life without Greece. Banks have recorded losses on Greek investments, companies are making contingency plans and Europe has bolstered rescue funds for other vulnerable nations like Portugal, Ireland and Spain…..

“.....European leaders are increasingly willing — even eager — to comment publicly on the possibility that Greece will leave, something they long refused to countenance, not just because relations with Greece continue to deteriorate but also as a result of their own preparations.”

The article makes clear that not everyone is optimistic about the consequences of a Greek departure, but you get the gist.
So the key question is not: Will Greece leave? It seems to be: Will Europe survive Greece’s exit?

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© 2012 Michael B. Lehmann

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