A North-South ideological divide in Europe is now out in the open. In one camp, the pro-austerity Northern Europe, made up of Germany and its allies, (Finland, Netherlands and Austria); and in the other, the profligate Southern Europe made up of Greece, Italy, Portugal and Spain. A creditor North and a debtor South: an intra-EU colonialism of sorts. The much-vaunted “European solidarity” is but a myth and the mutual interests are not moderating but reinforcing each other in polarised directions. I have long believed that Greece would stay in the Eurozone and my belief has always been predicated on the view that Germany would do whatever was needed and would bear the “cost” to preserve the Euro. Events over the last few weeks have made me question my view. The German position on Greece and its hard-nosed negotiation tactics surprised many. This crisis has exposed a fault line too: France and Germany do not share the same vision of Europe. Notwithstanding the fact that Greece secured a third bailout, I have now come to the conclusion that, on balance, the likelihood of Grexit is now higher than Greece actually staying in the Euro. A third bailout is by no means a carte blanche and there are many strings attached that could trip up Greece. Besides, a third bailout deal won’t prevent Greece from plunging into a deep recession this year and perhaps next.
Subscribe to our mailing list and receive our Market Viewpoints directly to your inbox
© 2019 Crossbridge Capital