Greece?s most important objective for 2012 is to shed fears of a eurozone exit. Until last summer, most foreign analysts would talk about ?country risk,? meaning political instability and the ability of the political system to introduce the much-needed reforms and trim deficits.
These days analysts now talk about ?currency risk.? The change has very serious implications. No one including foreign banks, small and big investors, and people who like to keep their savings at home — is going to make decisions while the currency question remains unanswered.
The whole referendum idea, raised by former Prime Minister George Papandreou, did a great deal of damage. European leaders meeting in Cannes said in public what senior officials had until then voiced only behind closed doors. When one listens to German Chancellor Angela Merkel or the head of the European Union executive Jose Manuel Barroso talk about a possible exit of Greece from the euro area, it is only natural that they will be extremely careful about their next move.
The arrival of Lucas Papademos, a respected technocrat and former central banker, eased the threat, but only for the time being. In a week from now, it will be time to decide what needs to be done to keep the country inside the eurozone and whether the political system has the strength to pull the task off.
The problem is that the vast majority of the Greek population wants the country to stay in the euro area. But at the same time, the same people oppose any cuts in the public sector and the reforms (the umbrella term ?memorandum? has generated a lot of negative publicity about the reforms).
In a few days, Papademos will be called upon to explain to voters that in order to stay in the euro area, we must do things that are disliked by the majority of the people and that no politician wants to identify with.
The lies are over and Greece has little room to maneouvre. It can choose between two paths: The path of reason passes through tough measures and reforms, the deep breath of the PSI (which will increase liquidity and eliminate the risk of a return to the drachma) and the coming instalments of bailout loans, the elections and an effort for national consensus.
The other path is steeper: The political system melts under the pressure of what needs to be done, the Papademos administration collapses, the nation goes to early elections, and a disorderly default becomes reality.
I do not think that any of Greece?s politicians would want to take the country down this path. That is unless our political class is big on words when it comes to backing the euro, but soft in action.