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Weights and counter-weights

· The Greek crisis after Standard & Poor’s declassification ·

The balance between weights and counter-weights in the Greek crisis is too delicate to produce an exact diagnosis. The agency Standard & Poor’s, explained their new rating of Greek stocks saying, “the risk that Athens heads towards a restructuring of their debt has increased.” But there are many who say that this would be the worst solution and that a complete re-definition of the conditions of debt is a fairy-tale. With the errors of Athens on one hand and the absence of a unified European strategy on the other, the speculation sharks have free reign. Paradoxically, at this point, the exit of Greece from the euro appears, according to some analysts, the way to go. Or at least the less painful way to go.

A return to the dracma would allow Athens to print money and bypass the debt problem, using the devaluation of currency to make the economy more competitive. The central bank of a country with sovereign currency can buy the shares of public debt by printing money and reducing the debt with relative inflation. According to the President of the German Institute for Economic Research (IFO), Hans-Werner Sinn, this is the only way that Athens can once again raise her head. It’s clear, explained Sinn in an interview with the German daily, Frankfurter Allgemeinen Sonntagszeitung, that the introduction of a new currency would bring enormous financial risks: panic would cause savers to pull their money out of banks and put it elsewhere, safe from possible insolvency. But the risk should be taken, said Sinn, because the Brussels plan is too rigid: in the long-term the politics of austerity will produce a cut in prices and salaries that would be unsustainable, causing businesses and banks to go into bankruptcy.

Axel Weber, the former President of the German Federal Bank and member of the board of the ECB, had already criticized the acquisition of Greek stocks by the ECB, hypothesizing a possible temporary exit from the eurozone. An idea which certainly did not please Angela Merkel and her government: the German banks are most exposed in Greece. In fact, Weber resigned at the end of April amidst controversy.

But is the idea of an exit from the euro really so unrealistic? Is it nothing more than media speculation which aims to manipulate the market? The other road, that of restructuring the debt, would have disastrous consequences especially in Greece. “The banking system would be brought to its knees,” said Lorenzo Bini-Smaghi, member of the Executive Committee of the ECB in an interview in Italian daily, La Stampa. “Both for the losses registered in the State stocks held in portfolio and because it would lose the possibility of re-financing with the ECB if it no longer had good quality stocks to use as collateral.” Despite this, the American economist, Nouriel Roubini said that restructuring is, “the only option that will become the most realistic one on which everyone will eventually come to agree.” Next year, Roubini said in an interview with Italian daily, “Sole 24 Ore”, “Athens will have to resort to the market for around 40 billion euro and it is clear that with such a spread that won’t happen unless the international community increases by another 40 billion euro the official program, something which, given the politics of Europe, will not happen.”

From 2013, with the launching of the new anti-crisis mechanism, the conditions for assistance to Athens will be even harder. It was calculated that in order to adjust itself, Greece must grow more than double the estimates of the IMF and the ECB. Perhaps the moment has come for Europe to clarify and ask itself if a continental Bretton Woods is not necessary to establish a new order.

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