Wednesday, May 16, 2012

Greece: The End in Sight?

So many people, Mario Draghi not least among them, have begun talking about a Greek exit from the euro that the prophecy is becoming self-fulfilling. There has been a slow run on Greek banks for some time now, as Greek savers transferred a part of their savings to other European countries, but the run has accelerated in recent days and has now reached the unsustainable level of 800 million euros per day. The euro fell to $1.27 against the dollar.

Meanwhile, as Bernard pointed out in comments, France conducted a successful bond issue, selling 8 billion euro at a lower interest rate than the last sale, thus giving the lie to Sarkozy's prediction that markets would tank if Hollande were elected. Unfortunately, Bernard's interpretation, that this successful bond sale means that I am exaggerating the severity of the euro crisis, is wrong. What it signifies is that investors are shifting funds to the stronger sovereigns, such as Germany and France. It is neither a vote of confidence in the Hollande government nor a vote of confidence in the eurozone. It's just a sign of flight to the deepest pockets as Greek destitution looms.

Merkel and Hollande made some comforting noises about rekindling growth in Greece and holding the eurozone together, but behind the scenes the talk grows darker by the day. I don't know about Hollande, but I'm fairly sure that the Germans have decided that Greece is hopeless and have chosen to make their stand in Spain. For Greece, whatever comes will come. It will be impossibly hard on the Greeks either way, stay or go, and the political system may not hold. Anything is possible, and the election and its aftermath showed that impending doom has not concentrated the mind, as Dr. Johnson believed it would, but has rather unleashed the wildest fantasies and the most uncontrollable passions.

History did not end in 1989. Far from it.

No comments:

Post a Comment