Will Greece Exit the Euro?

The Greek debt dilemma has been unfolding for several years. Three years ago we wrote about impending Greek bankruptcy. The European Central Bank and other agencies have bailed out Greece but the price has been high. Austerity measures have virtually killed the Greek economy forcing Greece to consider exiting the Euro. Currently there is optimism on Greece talks according to Bloomberg.

The euro rallied the most in 10 weeks versus the dollar amid optimism that Greece is moving closer to ending months of acrimony with creditors and lessening the threat of default.

The 19-nation currency extended its gain as the creditors were said to be wrapping up a plan to break a deadlock for the disbursement of additional funds, even as Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance ministers’ group, said they are still far from a deal. The currency also advanced as consumer prices in the region rose on an annual basis last month for the first time since November before the European Central Bank meets Wednesday.

“Inflation is heading in the right direction and Greece appears closer to clinching a rescue,” Joe Manimbo, an analyst at Western Union Business Solutions, a unit of Western Union Co. in Washington, said by phone. “It’s more of a relief rally,” that hinges on the prospect of a Greek deal and the ECB’s economic outlook, he said.

The plain fact of the matter is that Greece cannot pay its debts and the austerity measures prescribed by its lenders have only made things worse. Will Greece exit the Euro? It may be forced to unless EU lenders can offer better terms that help the Greek economy recover.

What Happens If?

The Guardian considers that a Greek exit from the Euro could be the least bad economic choice for Greece. The article discusses three possible outcomes.

The threat of Greece welching on its debts by the end of the week is concentrating minds. After a mini-summit in Berlin attended by the heads of the European commission, the European Central Bank and the International Monetary Fund, the so-called troika is preparing a fresh bail out offer.

Alexis Tsipras’s government was denying all knowledge of a new plan to break the deadlock, but one thing is certain: this Greek drama can end in only one of three ways.

The Guardian notes that if and when Greece leaves the EU and the Euro the constant threat of debt default will be gone. Times will be difficult but Greece will be able to function without the oversight of European bankers. If Greece agrees to more austerity measures the pain does not stop and governing could become impossible as the economy worsens yet again. A third choice is that the ECB and others give Greece a little room to breathe. This would be a preferable solution if the powers that be want to keep the EU together but it could also set a precedent that bankers may wish to avoid.

A Greek Tragedy

NBC News refers to the Greek default threat as an epic tragedy.

The Organization for Economic Co-operation and Development (OECD) has warned that a default by Greece or its exit from the euro area risks derailing the whole euro zone’s recovery.

“Failure to reach a satisfactory agreement between Greece and its official creditors would intensify perceptions of re-denomination risk and uncertainty,” the OECD said in its “Economic Outlook” report.

The underlying concern with the Greek debt crisis has always been that it will trigger a domino effect in which one after another, weak economies leave the Euro Zone and let Europe revert to a bunch of armed and squabbling nations intent to war to settle their grievances. The European Community was a good idea and the tragedy would be if it failed.