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Market Viewpoints

"In the end, more than freedom, they wanted security. They wanted a comfortable life, and they lost it all – security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free and was never free again."

For those who think Greece cannot be reformed, Grexit is an easy solution to propose, but not one without consequences for the Eurozone. It is right to say that Grexit is not a problem in the short term (indeed Greece is only 2% of the Eurozone’s economy), but it’s the medium term implications that worry Germany, the biggest beneficiary of the creation of the European Monetary Union (EMU). If a Grexit does happen, it will change the nature of the EMU forever and make the Euro unstable. EMU will not be a monetary union anymore but will become a fixed rate system like the Bretton Woods. The Bretton Woods system collapsed as it was a fixed rate system, and it came under increasing pressure in the late 1960s and early 1970s as policies pursued by the United States diverged from policies preferred by other member countries. An erosion of the EMU will be a bad outcome for Germany. Of course Germany will not do a deal at any price, but the cost right now is not too high to pay in exchange for guaranteeing the stability of the EMU. Therefore, I continue to believe there will be a deal. Greece, in turn, will be subject to severe reform, for its own good. Athens is finally accepting that raising revenue and cutting spending is its only route to survival.

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