Yes, it’s back. The speculation ran rampant a couple of years ago, that Greece couldn’t and wouldn’t accept the “austerity” measures imposed upon the by the European Union(EU). The thought was worrying to markets and CNBC (and others) was stuffed with “analysts” proclaiming dire consequences. Whether one actually calls what Greece was required to do under the agreement with the EU austerity or not, there is no doubt that their economy was in big trouble:
Greece has now been in recession for six straight years, and shows little sign of returning to growth any time soon. It is forecast to finish 2013 with output 4% lower than it was at the start of the year. Overall, the economy is now one quarter smaller than it was when the recession started — for a comparison, the U.S. economy shrank by just over 30% in the Great Depression of the 1930s, so although what has happened to Greece is not quite as bad as that yet, it is getting very close.
And as you can see the last two years of supposed “austerity” did not help in the growth department. Unemployment is at almost unimaginable levels, including a seemingly impossible rate of 55% among the young. Greece did not end up jumping off the EU train and somewhat quietly took their medicine. And while the cuts in government spending may have hurt, there does appear to be a light at the end of the tunnel. In fact, they are expected to run a “primary” surplus. What that means is that they are actually spending less than they are bringing in in taxes — that is without their debt. Their debt is crushing, of course, and basically all their own fault. But, while the economy may still be horrendous, the fact that the country can run on it’s own, leaves them with new options. The Greeks themselves (well, many of them) put a lot of the blame on their lot at the doorstep of the EU as it is. Paying back their debts to the people they consider the cause of their troubles may have even less appeal than ever. Still, it would be a huge step:
The key point is that it was not possible for Greece to get out of the single currency in 2012 or 2013. It had no way of paying for itself. But by next year, a trade and budget surplus will mean the country can leave if it wants to. The locks will have been taken off the doors — and it would be rash to assume Greece won’t walk out. If it does, the most likely moment will be this spring, and it will rock the markets.
Yes, it would. It’s really not the simple fact of Greece leaving the union, it’s that it might give other countries ideas. And, of course, Greece could just stiff the EU for it’s debt or pay it back in some newly minted drachmas or a combination of the two. It’s always been in the back of the mind of market watchers that something like this could happen. And while it did make the news almost daily for a while, the Greek drama has since receded. Any move to quit the EU would be a game changer, and at least temporarily, the markets would be very, very jittery.
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