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Saturday, 27 June 2015

Game over? – The REALLY Final Greek Act

Negotiations stuck, IMF and Eurogroup fed up, Tsipras calling for a referendum. What looks like the really final act of the endless and tedious Greek drama, could turn into a bottomless pit. The ultimate deadline has been extended several times, but now it is final and absolute. Everyone prepares for the seemingly unavoidable Grexit – Greece’s drop-out of the Euro-Zone.

The Eurogroup already announced that the bailout-programme will not be extended one more time and that it will definitely expire on Tuesday night, apparently a final attempt to force Greece to accept the provisions given by the Eurogroup and the International Monetary Fund (IMF). Prime Minister Alexis Tsipras, stuck between utter economic collapse and pride of sovereignty, and Finance Ministers Yanis Varoufakis have both abandoned from the negotiations and called for a referendum for the 5th of July, to gain support from the population and to have a democratically legitimated basis to continue his policy. Should a majority of the Greek people vote against the Eurogroup’s proposals, it will lead to unpredictable developments for both, Greece and the EU as a whole.

And End with a Big Bang?
Jeroen Dijsselbloem, the President of the Eurogroup, was visibly upset and annoyed during today’s press conference when he announced that the Eurogroup will not extend the bailout-programme, giving Greece just one more week to come up with a very final move to cooperate. Dijsselbloem also stated that this was “the last phase in which an agreement could have been made. The door is closed”. In fact, the Eurogroup and the EU have to braise for a massive impact now; and so does the Greek people. According to several media reports, more than 1 billion Euros have been withdrawn by the Greeks just today (almost 1% of Greece’s total deposit base), many ATM machines are empty, and everybody desperately tries to save their money as long as it is still possible. The Ministry for Internal Affairs called of higher readiness in the case of public riots. Should the outcome of next week’s referendum really lead to a refusal to cooperate, it will be the absolutely final step towards Grexit.

The worst case scenario – the end everyone dreaded and feared, the one everyone was hoping would never occur – is just a week away and everything that follows after that is completely open. Grexit would not just lead to Greek bankruptcy, but reintroduce the former Greek currency, the Drachma. What sounds like just a simple swap of currency as it was with the introduction of the Euro in 2002, will not be smooth whatsoever.

Little chance to reawaken, but huge social downfall
From an economic point of view, re-introducing the Drachma and immediately depreciating it would lead to a boosted inflation, though some economists believe that it would also boost Greek exports and be beneficial for the domestic industry. Whatever the economic outcome, the hardship for the population will reach a new and probably far more severe level.

If Greece defaults on in debts, the entire Greek social welfare system will effectively cease to exist and this would inevitably lead to mass pauperisation. Even though, some Greeks seem to take it with some sort of gallows humour “We can’t get any poorer than we are now” one man said when he was asked about the upcoming referendum next week – or #Greferendum as already tagged on twitter.

Others tend more to resignation, for them it is a simple matter of survival. With Grexit, their already melted savings will utterly disappear and it might take many years until Greece recovers. But even then, there is no guarantee that it might re-join the Euro-Zone, assuming that it might still exist when the time ever comes.

It’s going to be really really expensive!
If you think that it’s only Greece that will suffer from Grexit, then it’s definitely wrong. Taking a look at the Sovereign Risk Exposure, Germany might suffer an overall loss of approximately 60 billion euros. Some might say that this is just fair, but even France would suffer a loss of more than 40 billion Euros, Italy nearly 40 billion and Spain between 20 and 30 billion Euros. In terms of GDP, the country to lose the most would be Slovenia with a GDP drop of more than 2.5%, Italy almost 2.5%.

Italy would in fact suffer the most in case of a Grexit, its annual change in net government debt for this year would more than double. After Greece, Italy would be the second candidate on the list.

Endgame – The Beginning of the End or the End of the Beginning?
On an emergency summit taking place this upcoming Monday, the EU’s finance ministers will discuss the further actions in order to maintain the monetary union. The fear is evident that a Grexit might lead to an – as cynical as it may sound – “infection and contagion” effect in the EMU, meaning that other Eurozone countries might also be affected by similar effects of an ongoing economic crisis. Anxiety is huge and some even fear that Grexit will be the beginning of a general downturn of the Eurozone and of the EU overall.

Let there be no mistake: this is the most serious crisis the EU is facing in its long history since the first steps for European integration. It will show if the EU will be able and willing learn from this lesson by re-addressing its fundamental economic and monetary base-line, to really do some proper rethinking and try to draw future guidelines and policy lines of how to recover from this crisis and how to prevent future repetitions of Grexit. With other crisis states anxiously looking to Athens and Brussels, Grexit will surely also have a profound effect on them, especially Spain is nervous. With general elections coming up this November, Prime Minister Mariano Rajoy might face a defeat in election, with the rising left wing party “Podemos” (“We can”) ending up strong and possible cause a political and economic earthquake in Spain.

Additionally, even the Brexit option could gain a significant support – for the planned referendum on a UK withdrawal from the EU. British Euroscepticists will see a Grexit as an ultimate dead-give-away for leaving the EU, Nigel Farage from the Eurosceptic UKIP (United Kingdom Independence Party) is already getting ready to boast more anti-EU rants in the European Parliament.

No question about it, it is Europe’s deepest crisis and in contains enormous threats that the entire European “experiment” is going to fail, shrinking the Eurozone to a core construction of maybe five or six countries.

Next week will be the hottest week in Europe, meteorologically, monetarily and politically. If the Greek people vote against further cooperation on Sunday, it will be steaming hot all over the continent. The finance ministers have started to draft all eventualities and prepare for the first ever deep crisis of Europe. They are all in desperate need of a good working air condition – and a big one above all.

The citizens of Europe can only hope that common sense will have a last chance. Time is really running our now, just one more week to go.

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