This weekly is a follow-up post to the daily I wrote on Greece earlier in the week. As I indicated then, my position on Greece has always been that eurozone leaders would be loathe to ‘kicking Greece out of the euro zone”. The talk of a Grexit is not well-consdered without putting this important point at the top of the list of political and economic constraints. Instead of Grexit, what we should be discussing in the context of Greece is how well or poorly the Greek economy is functioning and what that will mean in terms of Greece making targets, public protest, and the likelihood of follow-on bailouts. I would like to discuss those issues here and conclude with some predictions about where I see the Greek situation heading in the next five to seven years.
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For now then, the Greek deal seems to fit the bill. It does not create an unnecessary domino effect that catapults Spain, Italy or France into crisis. And it does not force a public sector default with destabilizing political consequences. However, I expect Greek politics to radicalize as the economic situation worsens. And I expect a Greek re-default down the line, but this will probably not occur until after 2013. In the meantime, attention will shift away from Greece to the rest of the periphery and to France, where the situation is also becoming more precarious.