Greece will not leave the euro. This is not about likelihood. This is about certainty. Greece will stay within the euro. Its people and its leaders have infinitely more to gain from sticking with the euro than from switching to ‘their' drachma.
Greece will extract the most from its entrenched position within the euro and the European Union (EU). It will not choose to struggle all alone, outside EU and the euro.
First, staying within the euro enables Greece to access the services of the European Central Bank (ECB). It will have access to the wisdom and the insights that reside inside the ECB. It will have access to its infinite funding capabilities. Greece will have to fight its battles all by itself if it left the euro.
Second, staying within the euro allows Greece to use the power of persuasion and blackmail. It could blame the ECB. It could blame the prejudices of Germany for not showing enough empathy. Greece would lose this privilege to punch others if it left the euro. It will have to torment itself and traumatise its citizens in the absence of designated punching bags.
Third, Greece's public policies serve the elite. They are the ensconced beneficiaries. Greece's public debt is the Greek elite's private wealth. This wealth is held across Europe and outside Greece. This wealth is denominated in euros. This wealth produces cash flows in euros. A volitional exit from the euro would expose Greece's elite to exchange-rate volatility and mark-to-market write-ups and write-downs.
No compulsion
Greece's exit from the euro will have to be volitional. Its exit cannot be mandated by the other members of the euro. Moreover, Greece will have to leave the EU in order to leave the euro. The EU does not have a mechanism to push Greece out of it. As long as Greece stays within the EU, it sticks with the euro.
Greece can surely leave the EU on its own. Article 50 of the Lisbon Treaty of 2007 permits a member of the EU to leave the EU. Greece will have to notify the European Council that it wants to leave. But it will not.
Many benefits
The EU provides Greece with a range of economic, social, political and diplomatic benefits. Greece requires membership of the EU to resolve issues pertinent to trade, diplomacy and maritime boundaries. Greece needs the EU to get the most from labour mobility and migration.
Above all, Greece needs the EU and its laws for the mobility and the security of its capital invested outside Greece. Greece needs the EU and its laws for attracting capital from the other members of the EU.
So, Greece is not leaving the EU. If it will not leave the EU, it cannot leave the euro. Someday, the Lisbon Treaty and its predecessor, the Maastricht Treaty of 1992, could be amended to eject Greece. But that will require a majority affirmation from the members of the EU. Such an amendment by majority affirmation is most unlikely.
Same policies
Greece's politicians had to choose policies aimed at economic redistribution. They did this soon after the Greek Civil War in 1949. This war pitted the government against the armed members of the Greek Communist Party between 1946 and 1949.
Greece's political convictions and compulsions have caused the fiscal deficits and public debt. Every cent of its deficit adds to its debt because Greece ceded the power to print money to the ECB. Greece and 16 other Euro Zone members of the 27-nation EU have ceded this power to the ECB. They have to borrow in order to fund every euro cent of their deficits. Hence, deficit and debt mean the same.
Other countries in Europe have had their own entente and compromises with communism. Social democracy came to the fore as Europe's principal ethos. It was successful and stylish. It continues to be stylish. It became a viable alternative to communism. It has succeeded beyond the expectations of its leading advocates and protagonists. Most of Europe has vigorously redistributed wealth and incomes.
The redistribution of incomes and wealth has created big pools of elite beneficiaries within the EU. These commitments are not unique to Greece. Most EU members and the Euro Zone countries have commitments to make big payouts to the retired and the unemployed. They also make big payments to farmers.
The EU and the Euro Zone countries had done well with their political convictions and their economic policies. However, the recession in the US between 2007 and 2009 brought fiscal chaos to Europe. The faltering global recovery since 2009 made it worse.
Similar problems
The EU's gross government debt rose from 59 per cent in 2007 to 80 per cent of gross domestic product (GDP) in 2010. Greece was more severely affected. Its debt rose from 107.4 per cent to a stunning and numbing 144.9 per cent of GDP. Greece continued to borrow. Its lenders were ready, able and eager to lend.
Members of the EU with the euro as their currency had a more favourable market for issuing sovereign debt. Euro Zone gross government debt rose from 66 per cent in 2007 to 85 per cent of GDP in 2010. Global buyers of sovereign debt were more forgiving of deficits and debt in the Euro Zone countries. Gross debt for the EU as a whole was 59 per cent of GDP in 2007 and 80 per cent of GDP in 2010. The euro gives Greece and its 16 friends — this sounds so happy and honourable — a comparative advantage over the 11 non-euro EU members. So, any amendment to the Lisbon Treaty is unlikely to get the affirmative vote from the majority. Greece is unlikely to be pushed out. Greece will wisely choose to stay inside the EU and the euro.
(The author is a financial analyst.)