The Markets’ Message About Greece
I have no way of knowing if we have reached the point of no return. But I fear that even if we have not yet reached this point, we are heading in this direction at an ever increasing pace. Yesterday’s media reports were filled with articles, scenarios, and opinions regarding a possible Greek exit from the euro zone. The unfortunate comments by ex-central banker and prime minister Lucas Papademos – whether or not they were made on purpose is of little consequence – that there is a real danger of Greece leaving the euro had preceded these reports. However, the headline in yesterday’s Wall Street Journal was a blow: “Europe plans for Greece exit.” And that’s my fear. That we will wake up one morning and everything will be finished. Preparations have already begun. According to the WSJ, the euro zone’s finance ministers held a teleconference and “agreed on the need to form contingence plans in case Greece drops out of euro.” Other major newspapers in the U.S. and Europe reported pretty much the same. The drop in the euro’s exchange rate and in the stock markets evidences that things are heading in this direction. As a general rule, the markets are usually a step ahead of the developments. They serve as a barometer. They analyze the facts and based on their analysis they decide to buy or sell. Of course, I must point out that there is a difference between planning for an exit and actually deciding to exit the currency union. Still, these expectations become a kind of self-fulfilling prophecy, since the economy is based on trust and uncertainty takes the form of a snowball effect and creates its own dynamic, which is not easily overturned. Furthermore, there are growing voices among the experts supporting a Greek exit from the euro zone. “If Greece stays in the euro, it will die a slow death. If it leaves, it will go through a crisis, but it will have the opportunity to recover and once again reshape its society,” says economics professor Costas Lapavitsas in yesterday’s Financial Times. The professor’s argument has a lot of merit. However, I believe it is short-sighted. It is a position that condemns Greece to return to its Balkans past.