Financial Times
February 1, 2015
The past week reminded us of three truths. The first is that the eurozone crisis will not be over until it is resolved, that is, when the excess debt is written off. This truth is impervious to mood swings in Davos The second is that something that is unsustainable will have to stop sometime. We saw this when the Greek electorate put an end to a policy that failed to deliver, even on its own narrow terms, a fall in the debt burden. The third is that accidents happen.
Of all foreseeable accidents, the potentially most catastrophic would, of course, be Grexit — a Greek exit from the eurozone. This could happen but it is by no means inevitable.
The predominant German view is that Grexit would be a calamity for Greece, a minor shock for the eurozone and a non-event for the global economy. Newspaper editorials call on Chancellor Angela Merkel not to give in to blackmail. Even Sigmar Gabriel, Social Democrat chairman and economics minister, says the consequences of Grexit can be contained.
He could not be more wrong. In fact, I believe that the consequences of Grexit are likely to be as damaging to the eurozone as they would be to Greece itself. Those who play down risks tend to be good at adding up numbers but not at grasping the complex dynamics of a default on such a scale.
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