Grexit? It might do us all a favour.
Byline: JOHN WYN.EVANS
SO, GREEK voters have voted 'no' in a referendum, which in an almost Kafkaesque situation, was on whether to accept a bailout extension package that was no longer on offer.
Hopes of a timely compromise are slim and Greece's exit from the eurozone must now be considered a probability.
However, although this would be a disaster for the Greek people, it is likely to be only a temporary inconvenience for the rest of Europe.
Why? First, Greece accounts for only around two per cent of eurozone Gross Domestic Product so the direct impact of recession in Greece is small. Secondly, unlike in 2011/12, the mechanisms for multiplying the impact of Greek distress across the eurozone do not exist. Greek liabilities are fully identified, the eurozone banking system is recapitalised and well funded, and the other peripheral eurozone economies are now on a fiscally sound footing, so "a sovereign debt contagion crisis" is improbable. Finally, the European Central Bank has the weapons and the will to act quickly to calm markets, if necessary.
I do not agree with those who suggest the eurozone would be fatally weakened by Greece's exit.
In spite of provocation, the European community has conducted its negotiations with Greece in a dignified and diplomatic way. It must be remembered the negotiations were not about new austerity provisions, but about the delivery by Greece of promises already made under existing agreements and the release of bailout funds that could then be triggered. Additional debt forgiveness was never part of the agenda. Greece has already been forgiven well over 100 billion euros of debt.
The Greek government bears the responsibility for this situation. A healthy system must be able to eject bad apples and this process, while painful, is likely to perform that function.
The pain clearly experienced in the process is also likely to be a salutary lesson for those who might wish to follow Greece's lead. Whisper it quietly, but the eurozone may even be strengthened by Greece's exit.
John Wyn-Evans Head of Investment Strategy Investec Wealth & Investment Sponsored column
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|Publication:||The Birmingham Post (England)|
|Date:||Jul 9, 2015|
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