Groundhog day for Greece
Could controlled devaluation and temporary euro suspension solve the immediate Greek crisis, asks Rowan Dartington Signature’s Guy Stephens
We have lost track of the deadline schedule for a Greek default. First it was March, then various dates in April and now two in early May – it appears to shift depending on what they are most likely to default on. The markets are relatively relaxed as we have been here before in February when a fudge was agreed with a three month extension and this is what is about to expire. No-one is going anywhere near the Grexit button or even threatening to because the Eurocrats don’t want that and Syriza could well lose a vote of no confidence if that were to happen, bringing us back to square one.
A new agreement to turn the liquidity back on before the cash runs out in exchange for more commitment to reforms seems unlikely. We all know that the ability of the Tsipras government to enforce reform change is questionable as we are talking about the enforcement of the current law and words alone will not convince anyone anymore, least of all the Germans.
Brussels is adept at coming up with last minute bail-out plans which come with various conditions attached and avert crisis, allowing business to resume as usual. Take the Cypriot solution, previous Greek plans, the various pre-QE plans and now the European version of QE as we recognise it – they are all fiendishly complex but somehow they manage to solve the immediate problem and everyone saves face and claims some credit for averting disaster. But the problem is still lurking just beneath the solution veneer.
We suspect something similar is being cooked up with the IMF. There is talk of a Greek default but that this will not mean an exit from the euro. Some have said that Greece needs to come out of the euro temporarily and re-enter at a devalued level, with a fixed drachma (rather than floating) being used as the vehicle. This is theoretically elegant, will reduce their debts and prevent panic if accompanied by capital controls. This will also save electoral face for the Greek government where there is overwhelming support to retain the Euro. But it is a journey into the unknown and with that comes trepidation.