Facing the Grexit

Could Greece actually leave the Eurozone?

A big switch appears to have been flipped in the last week: talk of Greece exiting the Eurozone has moved from wild blue-sky thinking to the sort of thing Very Serious People write about. The Financial Times is running a series on how such an exit would happen, beginning today with a piece quoting several Eurozone central bankers saying things like:

I guess an amicable divorce – if that was ever needed – would be possible. (Luc Coene, central bank governor of Belgium)

And:

Technically, it [a Greek exit] can be managed… It is not necessarily fatal, but it is not attractive. (Patrick Honohan, Irish central bank governor)

Bloomberg echoed the statements, while Der Spiegel is running a cover that doesn't really need translating:

The macroeconomic issues with a Greek exit – a Grexit – would be immense. Paul Krugman lays out a convincing four-step guide as to how the whole thing could result in the end of the Eurozone, "and we’re talking about months, not years, for this to play out."

Krugman sees a Grexit leading to massive capital flight from Spain and Italy as savers race to move their deposits to Germany. That leads to either capital controls to prevent the exit, or massive (even in the context of those which have already happened) European Central Bank loans to stop the banking systems of those countries failing. Germany then has a choice. Either it becomes a guarantor for Spanish debt indefinitely, while also tolerating a higher level of Eurozone inflation than it has ever been willing to accept before; or the Eurozone breaks up.

Even the smaller issues with a Greek exit are hugely difficult to overcome, though. Currency swaps are normally done with huge levels of planning, and a long period of both currencies running in tandem to enable things like vending machines and electronic systems to switch over. But because the devaluing of a new Drachma would be so strong so quickly, Greece has no real chance to do this. If it decides to leave the Euro, it needs to get it over and done with in very little time.

Last September, Josh Hempton, a hedge fund manager, looked at the closest historical precedent for this high-speed currency swap: the break-up of the Austro-Hungarian Empire:

What they did was put troops on all the borders and made it illegal to take cash (or wire cash!) across borders. Then all Austro-Marks in each country was stamped - converted to Drachma for Greece, Marks for Germany, Peseta for Spain or whatever the currencies of the day were [If someone remembers the 1918 border splits better than me they are welcome to say...]

In this conception all Spanish debts become Peseta debts. All German debts become Mark debts. All Greek debts become Drachma debts. Unstamped currency goes worthless.

If you are going to split the currency I see no alternative to a big bang - and if you do that I see no alternative to troops at the border stopping transfers (and wire transfers) because shifting cash North looks so profitable against a sudden devaluation. Suddenly – and against all historic hope – its time again to guard the French-German (and every other European border) with troops for a week whilst the money is stamped.

Despite the fact that at every stage, the story of how the Eurozone will collapse is credible, there is a peculiar sense of optimism. As Joe Weisenthal writes, though, the thinking seems to be:

A crisis will be averted because to not avert it would be such a disaster. We'll see if that actually holds up.

The world looks to Greece right now Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Northern Ireland election results: a shift beneath the status quo

The power of the largest parties has been maintained, while newer parties running on nicher subjects with no connection to Northern Ireland’s traditional religious divide are rapidly rising.

After a long day of counting and tinkering with the region’s complex PR vote transfer sytem, Northern Irish election results are slowly starting to trickle in. Overall, the status quo of the largest parties has been maintained with Sinn Fein and the Democratic Unionist Party returning as the largest nationalist and unionist party respectively. However, beyond the immediate scope of the biggest parties, interesting changes are taking place. The two smaller nationalist and unionist parties appear to be losing support, while newer parties running on nicher subjects with no connection to Northern Ireland’s traditional religious divide are rapidly rising.

The most significant win of the night so far has been Gerry Carroll from People Before Profit who topped polls in the Republican heartland of West Belfast. Traditionally a Sinn Fein safe constituency and a former seat of party leader Gerry Adams, Carroll has won hearts at a local level after years of community work and anti-austerity activism. A second People Before Profit candidate Eamon McCann also holds a strong chance of winning a seat in Foyle. The hard-left party’s passionate defence of public services and anti-austerity politics have held sway with working class families in the Republican constituencies which both feature high unemployment levels and which are increasingly finding Republicanism’s focus on the constitutional question limiting in strained economic times.

The Green party is another smaller party which is slowly edging further into the mainstream. As one of the only pro-choice parties at Stormont which advocates for abortion to be legalised on a level with Great Britain’s 1967 Abortion Act, the party has found itself thrust into the spotlight in recent months following the prosecution of a number of women on abortion related offences.

The mixed-religion, cross-community Alliance party has experienced mixed results. Although it looks set to increase its result overall, one of the best known faces of the party, party leader David Ford, faces the real possibility of losing his seat in South Antrim following a poor performance as Justice Minister. Naomi Long, who sensationally beat First Minister Peter Robinson to take his East Belfast seat at the 2011 Westminster election before losing it again to a pan-unionist candidate, has been elected as Stormont MLA for the same constituency. Following her competent performance as MP and efforts to reach out to both Protestant and Catholic voters, she has been seen by many as a rising star in the party and could now represent a more appealing leader to Ford.

As these smaller parties slowly gain a foothold in Northern Ireland’s long-established and stagnant political landscape, it appears to be the smaller two nationalist and unionist parties which are losing out to them. The moderate nationalist party the SDLP risks losing previously safe seats such as well-known former minister Alex Attwood’s West Belfast seat. The party’s traditional, conservative values such as upholding the abortion ban and failing to embrace the campaign for same-sex marriage has alienated younger voters who instead may be drawn to Alliance, the Greens or People Before Profit. Local commentators have speculate that the party may fail to get enough support to qualify for a minister at the executive table.

The UUP are in a similar position on the unionist side of the spectrum. While popular with older voters, they lack the charismatic force of the DUP and progressive policies of the newer parties. Over the course of the last parliament, the party has aired the possibility of forming an official opposition rather than propping up the mandatory power-sharing coalition set out by the peace process. A few months ago, legislation will finally past to allow such an opposition to form. The UUP would not commit to saying whether they are planning on being the first party to take up that position. However, lacklustre election results may increase the appeal. As the SDLP suffers similar circumstances, they might well also see themselves attracted to the role and form a Stormont’s first official opposition together as a way of regaining relevance and esteem in a system where smaller parties are increasingly jostling for space.