There is a danger that the German government has become too relaxed about the possibility of the Greek exit from the euro. The situation today is different from 2012 when Greek exit first became a real possibility. At that time, Germany would have been blamed as it was seen as the sole driving force behind getting the euro through its crisis and there had not been enough preparation to insulate European financial institutions from Greek contagion.
This time, German Chancellor Angela Merkel has been obviously patient for a very long time, so that no one can blame Germany, which is a key political requirement for the Germans. They do not want to be blamed for a European failure and imposing too much austerity. But the chaotic style of the Syriza government in Greece, and its harsh rhetoric and inept diplomacy, have made it lose the sympathy of those who hate German austerity — like France and Italy and even the European Commission and International Monetary Fund.
But there is a danger that German-led rectitude will cause more pain than expected. A Greek exit does not automatically mean that a new autonomous monetary policy and a weaker currency will allow Greece to recover rapidly.
A rushed and chaotic exit will also mean that foreign debt (in euros or dollars) will balloon when measured in new drachma, forcing companies and banks into default. Substantial inflation and financial chaos will follow and the deeper institutional and structural problems of the Greek state and economy will remain unresolved, according to the Centre for European Reform.
As Germany leads the decision-making after tomorrow’s referendum, its friends in the European Union have to help Berlin to see the wider picture. A Greek exit will show that the euro has been too weak to manage itself because it should have stopped the problem years ago and it will set a precedent that can lead to the eventual disintegration of the Eurozone. Germany should be ready to continue to listen to Greece.
