Multi-Lose Eurozone if Greece Secedes

The ripple effect of Greece’s secession from the Eurozone may combine with the fueling of external forces to lead to a multi-lose situation in the Eurozone. If a big upheaval takes place in the Eurozone， the recovery of the world economy will face even greater uncertainties.

The mode of “paying old debts with new debts” is not sustainable， and Greece may be the first to default in a real term among the debt-stricken European countries.

Recently， as Greek President Karolos Papoulias has failed in forming the cabinet and the radical leftist alliance is against joining in the unity government， central bank officials in the Eurozone have begun to discuss how to deal with Greece’s potential secession from the Eurozone for the first time. In an interview with Greek media， Weidman， the German central banker alleges: “if Greece secedes from the Eurozone， it will be faced with much severer consequences than other countries of the Eurozone”.

In case that Greece does secede from the Eurozone， for countries of the Eurozone there will be hardly any real winner.

First of all， both the political and economic situations in Greece will be increasingly severe. Whether restarting its old national currency or employing a new currency after seceding from the Eurozone， Greek will inevitably suffer from a sharp currency depreciation. Consequently， debt service pressure of international borrowing will rise in no time， both public and private economic sectors will face the threat of bankruptcy， welfare of domestic citizens can’t be guaranteed， and the so-called left-wing’s political stunt of protecting the interests of the people will be hobbled.

Secondly， for European countries which shoulder debt in intermediate level like Spain and Italy， Greece’s secession from the Eurozone may mean a chain reaction. The international community， especially the U.S. hedge fund has long been planning to short the euro， and Greece’s secession may become its long-awaited timing for action. Countries like Spain and Italy that are in precarious situation and rely on euro for sheltering will be directly exposed to the threat of international shorting selling. As a result， the economic and political conditions of European countries with debt problems will plummet， though the Eurozone is not likely to fall apart.

Thirdly， core countries such as Germany and France with adequate immunity will also have their international influences greatly reduced. For Germany and France， even if the Eurozone collapses， all they have to do is to restart their national currencies， and there will be not really much of a fatal injury in their economy. Relying on the geographical advantages， Germany and France can still maintain a certain influ- ence on their close neighbors， namely the SouthEastern Europe countries. However， seeing from a more fundamental point of view， decline of the Eurozone reflects that Germany and France’s great attempt to make the Europe “speak with one voice” encounters great obstacles. Thereafter， synergy and cohesion of the Eurozone will be greatly reduced. The European countries， having their own economic and political interests in mind are much more likely to ignore the EU and act alone， and it is very difficult for Germany and France to find a reasonable excuse to dominate other European countries.

With the decline of the Eurozone， all the other parties， the United States in particular will reinforce their influences in Europe; without Eurozone as the“amplifier”， Germany and France can hardly be on an equal footing with the United States， and they can neither continue to use the European Commission as a big stick to attack their competitors. The ripple effect of Greece’s secession from the Eurozone may combine with the fueling of external forces to lead to a multilose situation in the Eurozone.

As for China， on the one hand， it needs to reassure its trading partners in the Eurozone， because as the largest trading partner of China， EU’s chaos in economy and politics will make China’s declining exports worse still. On the recent Canton Fair， a certain degree of decline has taken place in the number of institutional and individual participants from the EU， as well as the trading volume. In addition， if a big upheaval takes place in the Eurozone， the recovery of the world economy will face even greater uncertainties.

One the other hand， China also needs the power of the Eurozone to contend with America， Japan and other forces. Now it is the most optimal timing for China to step up its negotiation with the EU; if the Eurozone lifts its control over its high-tech product exports to China and admits China’s market economy status， China is able to greatly enhance its initiative in the negotiations with the United States and Japan. Moreover， China can also take this opportunity to reinforce its “going out” to the Europe， and improve domestic industrial structure through management， technology and service update.

From another perspective， the contentions within the Eurozone can only be regarded as a political gaming because Greece’s secession from the Eurozone will lead to a multi-lose situation; currently， it’s not wise to come to a conclusion on Greece’s secession from the Eurozone.