German right / Greece left - Politics makes for strange bedfellows - BBH


FXStreet (Guatemala) - Analysts at Brown Brothers Harriman explained that the German critics on the right of Chancellor Merkel think that Greece should leave the monetary union.

Key Quotes:

"The economic advisersto Merkel have argued that the Greece's exit would not necessarily be disruptive.

Ironically, the far left in Greece, the left-wing of the Syriza coalition seems to agree. In The Guardian, Costas Lapavitas, a Syriza MP from the left, also argues that Greece should leave EMU. In essence Lapavitas argues that Syriza cannot pursue the agenda it was elected on with EMU, and European officials do not want Greece in EMU if it were to make good on its campaign promises. The only solution is to leave. "

"Lapavitas argues that the only way prosperity can return to Greece is outside of EMU. Yet he does not consider what happens the day after Greece would leave EMU. The country would be hit hard. Another recession/depression would be likely. Inflation would rise. Interest rates would rise. Unemployment would soar. A severe banking crisis would ensue. Greece does not have the export capacity to take advantage of what would likely quickly become a very weak currency. "

"Lapavitas argues, as many EMU critics do, that it is the institutional rigidity of EMU that is holding countries back. Yet, before EMU Greece was not economically dynamic. A return to those days is impossible, and even if it were possible, it is undesirable. The quality of life for Greek workers would not improve."

"The Greek left and the German right are not alone. A Reuters poll published earlier today found 37.1% of the 980 respondents expect Greece to leave EMU. The poll was conducted February 26-28. The agreement between Greece and its official creditors was struck in principle on February 24. The February results compare with 22.5% in January thinking Greece would leave. It is the highest since late 2012. It peaked in July 2012 just below 72%. Reuters noted that investors surveyed were mostly in Germany. Last July only 5.7% thought Greece would leave EMU."

"There are two significant implications. First, it means that a sizable minority is not convinced that EMU is irreversible.

"Second, the possibility of a Grexit will continue to cast a pall over Greece at least through June, with a flare-up likely toward the end of April."

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