Sunday, January 4, 2015

German Government Considers a Greece Exit Almost Unavoidable If the Leftwing Syriza Opposition Wins Upcoming Election

Athens, Greece train station.

Opinion polls show Syriza is holding a lead over New Democracy, although its margin has narrowed to about three percentage points in the run-up to the vote.

Syriza says it would demand debt relief from the eurozone, that is a defacto default, if it gains control of the government and promises to roll back many of the austerity and reform measures Greece has undertaken in exchange for that aid. In last month’s parliamentary vote, Syriza blocked the government’s presidential candidate so as to force early elections some 18 months ahead of schedule.

The German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsipras wins an election set for Jan. 25, reports Reuters.

A Greek exit from the Eurozone would mean Greece abandoning the euro and returning to its former pre-EZ currency, the drachma.

The German government believes that the euro zone would now be able to cope with a Greece exit if that proved to be necessary, Der Spiegel news magazine reported on Saturday, citing unnamed government sources.

Both Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble believe the euro zone has implemented enough reforms since the height of the regional crisis in 2012 to make a potential Greece exit manageable, Der Spiegel reported.

"The danger of contagion is limited because Portugal and Ireland are considered rehabilitated," the weekly news magazine quoted one government source saying.

Other possibilities include Greece returning to the drachma, but Greece staying as part of the EZ for trading purposes.

A default of government debt is always a good thing to see, as opposed to seeing the debt payments coerced into being made by raising taxes on the hardworking citizens of a country. It is a great precedent to be set. That said, the other, leftist, policy positions of Syriza will do nothing but suffocate the already extremely regulated Greek economy. Further, it is doubtful that Syriza would manage the drachma in a responsible manner and the newly reintroduced currency could fuel a bout of hyperinflation in the country.

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