Grexit a real threat, The Economist proclaims

economist_afroditeThe euro crisis, which began in Greece five years ago, is likely to reach its denouement in the same country, The Economist proclaims in its latest issue.

As often happens with the main story, The Economist’s article is accompanied by a provocative cover, of Venus of Milos pointing a gun at someone off-page. Is it German chancellor Angela Merkel? Is it the euro, or Europe itself? This cover is the latest in a long line of Greece-related covers, all of which are, to put it mildly, skeptical of the country’s future.

The Economist finds fault with both main characters. Newly-elected Greek prime minister Alexis Tsipras “probably…a crazy leftwinger” and Merkel is the too-doctrinaire champion of austerity. “Greek voters may be living in a fool’s paradise if they think Mr Tsipras can deliver what he says, but the Germans too have to look at the consequences of their obstinacy,” it says. “If Mrs Merkel continues to oppose all efforts to kick-start growth and banish deflation in the euro zone, she will condemn Europe to a lost decade even more debilitating than Japan’s in the 1990s,” The Economist adds.

On the other hand, Europe is now in a better position to withstand a Greek exit from the euro than at the onset of the crisis.  And this exit “would lead to bust banks, onerous capital controls, more loss of income, unemployment even higher than today’s 25% rate—and the country’s likely exit from the European Union.”

The Economist sees as a likely outcome “a temporary fudge—but it is one that is unlikely to last long. If Mr Tsipras gets no debt relief, then he will lose all credibility with Greek voters. But even if he wins only marginal improvements in Greece’s position, other countries are bound to resist. Any changes in the bail-out terms will have to be voted on in some national parliaments.”