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Greece, the euro’s sacrificial lamb?

By Alexis Papachelas

Treating debt-wracked Greece as the sacrificial lamb of the eurozone could have dangerous and unintended repercussions.

The more pragmatic American observers claim to be stunned by the manner in which hardline German officials are dealing with their southern European partner. Having experienced the Lehman crisis and its unpredictable fallout, American officials are warning Berlin that a Greek euro exit would not be a simple affair.

Officials on the other side however argue that the markets have already priced in the scenario, thus easing its impact on the global financial system. Also, they think that the crisis is not likely to spread to the rest of the continent.

US officials are shocked at the stubborness of their German counterparts. They are particularly worried that the hardline view is shared by high-ranking officials at the European Central Bank.

To be sure, the Americans have their own reasons to see things differently. First of all, it’s not their money that we’re talking about nor do they have to face pressure from their local electorates. Secondly, they fear that a collapse of the euro would impact on the US economy, also ahead of a national election.

That said, there’s only so much that they can do. They are putting some pressure on the International Monetary Fund, they are constantly speaking with German officials, and are urging Greece to meet its commitments -- all that ahead of Berlin’s decisions in September.

Recently, an experienced US analyst spoke of a rather worrying exchange that he had in Berlin. The American had supposedly argued in front of some German officials that it would be cheaper to back Greece for a while longer since it was nearing the end of its fiscal tunnel, rather than shoulder the big, and quite unpredictable, cost of a euro exit. Their response was that, first, Greece should be punished for not making good on its pledges and, secondly, that the markets would be stunned by a possible Grexit and therefore make things easier for the eurozone to support the rest of the debt-hit periphery.

The coming weeks will show whether German Chancellor Angela Merkel has in fact decided to cross the Rubicon. In other words, it will become clear if she intends to raise the bar too high for Greek politicians and, more importantly, for the people. If she decides it’s over for Greece, the implications for the country would be devastating. We must quickly find out where we stand in order to hammer out our bargaining strategy and all contingency scenarios.

ekathimerini.com , Saturday August 11, 2012 (15:33)  
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