Political solution likely

From a commentary by John Browne, Senior Economic Consultant to Euro Pacific Capital. According to a new Emnid, only 16% of Germans agree with a partial writedown of Greek debt. While 33% would extend the repayment time schedule, a massive 43 % of Germans are against any concessions whatsoever. However, in the present increasingly anti-EU political climate, any mishandling of the Greek situation that leads to a Greek euro-exit could break the euro and lead to the collapse of the entire EU concept. As the EU has the world’s largest economy and the second largest currency, the effect of dissolution could result in a currency crisis and throw a shaky world economy into a catastrophic depression. Should the Greek situation not be settled, the Anglosphere-led world faces massive political, economic and financial consequences. The EU is possibly its first great experiment in global governance. It believes it must not fail. Given the entrenched interests, a political solution will likely be found that leaves Greece within the euro. The price may be increased political integration within the EU, with political incentives offered to Germany that will justify the financial costs borne by unwilling German citizens. However, when politics is involved, anything is possible. It appears as if the new Greek leaders are flush with victory and will be willing to risk a wider crisis in order to deliver on their campaign promises. My hope is that Greece’s longstanding dependency on foreign support makes it a distinct case in the Southern tier. Italy, Spain and Portugal have not been on the front lines of strategic and ideological struggles as often as Greece has been over the past two centuries. As a result, their willingness to make additional demands from the North may not be as deeply ingrained. This means that even if Greece leaves, its exit may be a solitary one, which might result in a stronger Eurozone, and a stronger euro. While investors might hedge long European positions, they could be wrong to sell Europe short. It is more likely than not that the Eurozone will find a solution that retains Greece, which may make the euro and certain European stocks look cheap relative to the U.S.