A young European voice on Grexit: too high a bill and too big a deal!

Written by Camilla Crovella, member of the Eustory Alumni Network and Spotlight Europe

Camilla Crovella is a member of the Eustory Alumni Network and member of Spotlight Europe

Camilla Crovella is a member of the Eustory Alumni Network and member of Spotlight Europe

The European reality has always been crossed by threats of division and secessionisms due to its cultural and political diversity which constitutes both its weak point but also the basis for building its strength.

One of these aspects, which has remained a latent possibility in the last years, is now becoming more concrete; it has been nicknamed as Grexit, the hypothetical Greek withdrawal from the Eurozone.

In February, the new Tsipras government reached an agreement with the Eurozone creditor countries, including a package of immediate reforms and an extension of four months of the financial assistance program. Even though Europe could feel relieved at that moment, the compromise calls for tough negotiations on a new financial assistance program to be introduced by the end of June.

In any negotiation the fundamental element that influences the behavior of the players and then the final result, as Jean Pisani-Ferri, French economist, public policy expert and French government Commissioner General for Policy Planning recently observed, is the cost that the impossibility to find a further agreement would bring to the protagonists themselves.

To understand more deeply the phenomenon, it is important to focus on two key points: The actual legal provisions it could base its ruts on and the economic consequences of its realization.

Concerning the first aspect, under the Treaty on European Union, the fundamental document of institutional regulation of the EU, it is written that ”Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements” (Art. 50), but no provision appears to establish either the opposite process, an exclusion carried out by all the components against one Member State, or the revocability of the Euro – membership.

André Sapir, think tank Bruegel’s Senior Fellow, Professor of Economics at the Université Libre de Bruxelles (ULB) and former economic adviser to the president of the European Commission, confirmed this. In an interview that recently appeared in several European daily newspapers, such as the Italian Il Sole 24 Ore, he affirmed that Grexit is just an exercise of «Phanta-politics». He also underlined that the other Member States would not accept to lose a Mediterranean politically and economically strategic point, such as Greece.

But what would be the bill generated by a possible Greek withdrawal from the Eurozone, in economic terms?

Since the question started to become more serious (2012), two different theories have been developed on the topic. The first one, known as the domino theory, states that a possible Greek withdrawal would lead markets to wonder which country could leave the Eurozone next. The fate of the other countries would then be questioned, similarly to what happened during the sovereign debt crisis in Europe in 2010-2012. The consequence could be an implosion of the Eurozone.

Instead, according to the other vision, the theory of ballast, the Eurozone would actually be strengthened by Grexit. The monetary union would finally manage to erase a constant problem. Additionally, a decision to let Greece leave the Eurozone, or push it to do so, would increase the credibility of its rules.

In 2012, the former one seemed sufficiently realistic to push the creditor countries to put the option of a Greek exclusion aside. The German Chancellor, Angela Merkel, decided to officially visit Athens where she expressed her “hope and desire” that Greece would keep up being a Member.

Nowadays though, the situation is quite different. The rating agency Fitch has recently declared (6th March) that, although Grexit is still a concrete risk, Eurozone is now immune to risks contagion.

”The Eurozone has developed mechanisms to alleviate the risk of contagion and concerns about the solvency of other Member States are less evident than what they were like in 2012. A domino effect from Grexit is therefore unlikely to happen”, remarked Fitch.

Indeed, adds the agency, the market stress has considerably decreased. The financial support programs no longer support Ireland and Portugal; the Eurozone financial system has been strengthened by the decision to move towards a banking union.

Despite these reassurances, as Jean Pisani-Ferri wrote, it cannot be stated yet that a Greek withdrawal would not bring any damage and this is mainly due to two reasons.

First of all, it would contradict the tacit assumption that participation in the Eurozone is irrevocable. This would create a precedent in European history and, if the climate began to be a bit tense again, there would be no certainty that another Member State would not follow this path.

Secondly, a possible withdrawal of Athens would force the European policymakers to formalize the rules of quitting, so far unwritten and undefined. This would naturally turn the risk of breach not only more acceptable, but also more concrete.

This does not mean, Pisani-Ferri added, that the other Member States should play any possible card or pay any possible price to keep Greece as a Member of the Union. But, on the other hand, the idea of a peaceful and effectless withdrawal of the country from the Eurozone is an illusion.

From the perspective of young generations it does not appear as hopeful future scenery, to know that the Greek tool would in any case pass on our shoulders too, once stepped in and established as agents in the labor markets. Despite this, it is crucial for a young European to learn how to think in a wider perspective; the European project is not a cup of tea to be set into reality, but in its complexity resides its strength too. Losing any part of this project would mean to damage it somehow. A human body still works without a hand but less effectively.

It is important that each young EU citizen understands this key aspect and accepts some small personal sacrifices in order for the whole machine to work better. There is a negative effectless way neither in losing a hand nor in losing the component of a Union.

About the author

Camilla (21) is a member of the Eustory Alumni Network and writes articles for online magazines. She studies Law at the University of Turin.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Join the Hive!

Featured Stings

EU to spend €135.5 billion in 2014 or 6.5% less than this year

Biggest London City Banks ready to move core European operations to Frankfurt or Dublin?

A new global financial crisis develops fast; who denies it?

How did Facebook fool the Commission that easily during the WhatsApp acquisition?

The EU can afford to invest trillions in support of employment

On the euro but out of it?

Turkey caught in a vicious Syrian circle bringing terror and war at home

JADE Testimonial #1: Marcello @ Enlargement

On Youth Participation: Are we active citizens?

The Parliament accuses core EU countries of exploiting their dominant political position

EU to spend €6 billion on youth employment and training futile schemes

EU regional differences betray an unjust arrangement

World Health Organisation and young doctors: is there any place for improvement?

Summer pause gives time to rethink Eurozone’s problems

Two women threaten to tear the world apart

Imaginary Journeys Into Eternal China

MEP Cristiana Muscardini @ European Business Summit 2014: International Trade in Europe

High-technology manufacturing saves the EU industry

Galileo funding: A ‘small’ difference of €700 million

Can Europe and the US reverse their nationalist and xenophobic drift? Is the West becoming belligerent?

The Brits are not an exception and that’s why they voted to leave

Minsk “ceasefire” leaves more doubts than safety, with EU already planning steps further

ECB’s first flight in Eurozone’s banking universe will be just a reconnaissance

The British “nonsense”, the relaxed Commissioner and the TTIP “chiaroscuro” at this week’s Council

MWC 2016: IoT experts fret over fragmentation

Why France, Italy and the US press Germany to accept a cheaper euro and pay for Greece

IMF: How can Eurozone avoid stagnation

High level political talks didn’t break the stalemate in Ukraine

“Airbnb and YouTube are two great examples of a crowd based capitalism”, key stakeholders outline the boundaries of the 4th Industrial Revolution in Davos

Can the EU afford to block China’s business openings to Europe by denying her the ‘market economy status’?

Trump asked Merkel to pay NATO arrears and cut down exports ignoring the EU

EU to gain the most from the agreement with Iran

Who cares about the unity of Ukraine?

Brexit: when the hubris of one man can set the UK, the EU and the entire world on fire

Hollande protects the euro from the attacks of extremists

New chapters in EU-China trade disputes

Two major EU projects falter; the Schengen Agreement now freezes and Eurozone fails to resolve the Greek enigma

“No labels for entrepreneurs!”, a young business leader from Italy cries out

Europe slammed by Turkey’s shaky Erdoğan; both playing with immigrants’ agony

Inegalitarian taxation on labour haunts Europe’s social model

2013, a Political Odyssey: What future for Italy?

The EU Parliament and the ECB unknowingly or unwillingly fail to protect our financial assets

ECB’s new money bonanza handed out to help the real economy or create new bubbles?

Dear China

ECB: The bastion of effective and equitable Europeanism keeps up quantitative easing

JADE President opens JADE Spring Meeting 2014

Cancer research put at risk by General Data Protection Regulation? The possible dangers of a data privacy EU mania

Opening Remarks by H.E. Ambassador Yang Yanyi, Head of the Chinese Mission to the EU at the Chinese Fashion Night

An entrepreneurial point-of view on tackling the migration crisis and the risks of abolishing Schengen

France and Poland to block David Cameron’s plans on immigration

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s