Will Grexit be seen very soon?

June 30, 2015 07:47
Pensioners gather outside a closed branch of the National Bank of Greece in Athens on Monday. Photo: Reuters

Late Sunday evening, Hong Kong time, the European Central Bank finally decided to maintain the emergency liquidity assistance (ELA) to Greek banks at 89 billion euros (US$98.5 billion), rather than continue to raise it.

The ELA is absolutely vital to Greek banks, allowing them to maintain financial liquidity despite a gradually accelerating run on the banks, as Greek depositors continue to withdraw their savings.

Should Greek banks become insolvent the economy would be drained of lifeblood until either liquidity in the euro is restored or a new currency is gradually introduced. Should the latter scenario occur, it will essentially be at least a temporary, de facto and disorderly Grexit.

Should the ECB wish to reconsider, it can of course do so at any time; it has stated that it will review its decision. Yet deciding not to raise the limit for now is a sign of solidarity with the International Monetary Fund and the European Commission, and intended to maintain the pressure on Greece.

Just five months ago, Syriza's gambit was that with austerity being generally unpopular in the eurozone it could fundamentally renegotiate the bailout agreement with the creditor nations, gaining further debt reduction and rollback on reforms.

Tsipras, who once said he was "anxious" that Hugo Chavez was no longer around to lead the Bolivarian revolution in Venezuela, a nation now short on everything from toilet paper to syringes and food, failed to realize that none of his European colleagues were as far to the left as his government.

Greece's fellow debtor governments are center-right in Italy and Spain, social democratic in Portugal and a coalition center-right/left government in Ireland.

Greece may not be evicted from the eurozone simply because it defaults, but it is a very likely scenario, given the language of condemnation that is likely to be shouted from Athens, naming the creditors criminals and pillagers, as hundreds of billions of euros in debt are wiped out.

Greece will certainly not be forced out of the EU itself, yet if Greece was to further destabilize a new Greek government may well wish to realign the nation.

Nor is it certain that a Grexit will hurt Europe politically in the long term, outside of the estrangement and perhaps even outright loss of Greece in the EU as well as eurozone. The united stance of the debtor nations will boost discipline among the ranks of governments.

Yet their voters may be far less predictable; even far or radical left governments often consider the basics of economic fundamentals. Voters at the booth may simply decide to protest, even if their vote is for parties like Podemos which is closer to Bolivarianism than the average Social Democratic party.

Should the EU be weakened it may be all the better for America and the long-term prospects of NATO. While Washington still considers a united Europe to be an ally in concerns ranging all across the world, it has become obvious that the countries of Europe — Germany, in particular — have become avowedly neutralist since the end of the Cold War.

There is no European army or military solidarity, even for such members as the Baltic and Scandinavian countries on the Russian border, who deal with near daily incursions on the very edge of or actually in their airspace.

Whatever the Greeks vote on July 5th, if the Greek government defaults on its debts due at the end of Tuesday, the ECB seems likely to end the program. Perhaps an extension will be granted until after the election, but the Troika seems reluctant to do things on Greece's terms.

However, should the Greek people vote to honor the agreement, the most likely outcome is either that a similar arrangement is quickly made to take the place of the previous one, or that immediate snap elections are called for by a disillusioned Tsipras. Perhaps even both might occur in rapid succession.

But is there a will? Is there a way? In the end it seems there is a fundamental disagreement on who is entitled to what. Europe is not one, indivisible nation, and from the Dark Ages to the glories of the scientific revolution, it never has been. 

Even the Romans eventually found out.

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A Hong Kong-based writer from Norway