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Government officials and independent analysts in Lisbon, Madrid and Rome say a chaotic Greek abandonment of the euro, bringing widespread economic distress and social upheaval in its wake, would serve as a cautionary shock and probably weaken anti-euro political forces in countries exposed to possible contagion from Greece.
According to José Ignacio Torreblanca, head of the Madrid office of the European Council on Foreign Relations think-tank, a Grexit would not be good for Podemos, Spain’s new radical leftist party, which has high hopes of success in national parliamentary elections due at the end of this year.
“I’m not saying this would destroy Podemos, but it would possibly spoil their plans to be the main force of the left,” he said. This explains why the party is already distancing itself from Syriza, the governing Greek party that is in some respects its ideological sister movement, he added.
On the other hand, a Grexit that was carefully managed and led to economic recovery in Greece, albeit after five to 10 years, might strengthen populist parties such as Italy’s Northern League and Five-Star Movement, which contend that eurozone membership has been little short of a national economic disaster.
The lessons to be drawn from Grexit would also depend on whether Greece was able to keep its EU membership, whether its democratic institutions and the rule of law remained intact, whether it aligned itself more closely with Russia or other foreign powers, and whether there were dangerous consequences for regional security in southeast Europe.
For government officials and foreign policy analysts in Rome, one big concern is that a Greek departure from Europe’s monetary union would weaken the push for a deeper political union that Italy has always supported.
For a Greek exit would not only show, for the first time since the 1950s, that European integration can break down and even go into reverse. It would also damage the EU’s image as a club that always looks after its weaker member states — no small matter for the 18 EU member states that have smaller populations than Greece’s 10.8m.
Cyprus, Ireland, Portugal and Spain each followed Greece in requiring emergency rescues from their European partners and the International Monetary Fund between 2010 and 2013. But, with the partial exception of Cyprus, each has emerged from its crisis with healthier public finances, more stable banks and better economic growth prospects.
The European Central Bank’s evolution in 2012 into a more credible “lender of last resort”, willing to buy vast amounts of government bonds in order to protect the eurozone’s unity, and the ECB’s current quantitative easing programme have increased the confidence of southern European governments in their ability to ride out storms originating in Greece.
In one typical comment, Rui Machete, Portugal’s foreign minister, said recently that a Greek exit from the eurozone would be “worrying” but “not tragic for Portugal”.
However, Portugal’s public debt peaked last year at 130 per cent of gross domestic product, and the combined level of corporate and household debt is even higher. Moody’s, the credit rating agency, said in a report last week that “Portugal’s external vulnerability remains high, given its high external debt levels, and the country would be susceptible” if investor confidence took a hit from a Greek exit.
Officials in Lisbon, Madrid and Rome point to their countries’ very low government bond yields as proof that there is no threat on the horizon. “The EU is much more solid than it was in 2011 and 2012,” one Italian official said.
However, such confidence begs the question of how solid the eurozone will look once the ECB withdraws its exceptional support measures — as is likely after two years or so — and in the event of a 2008-style financial maelstrom.