I wrote an article for Room for Debate at the New York Times on the potential for a Greek collapse to end the euro. Here are the parts I would highlight:
Papandreou’s decision to call a referendum has put the Greek government at risk. Indeed, the government may collapse before any referendum is called.
But the decision was necessary because austerity is deeply unpopular in Greece and has already caused tremendous social unrest… Given the widespread perception among Europeans that the E.U. system is undemocratic, there was no alternative but to put these measures to a vote to ensure their political viability in an already volatile social environment.
Will the collapse of the Greek government destroy the euro zone? It certainly could. Italy’s recoupling to the periphery is well-advanced, making it now the focal point of the sovereign debt crisis. Bond yields in Italy and elsewhere in the European periphery have skyrocketed. Contagion has spread to the banks as well.
The E.C.B. has been forced to intervene for Italy. However, the damage is already done. Unless the E.C.B. acts as a lender of last resort, it is game over for the euro zone.
Click below for the full text and other opinions on this issue.
Source: Will Greece Destroy the Euro Zone? – Room for Debate, NYTimes