Why does Greece – a country with little more than 2 per cent of the eurozone’s gross domestic product – cause such headaches? On a daily basis, people living as far apart as Beijing and Washington read stories of promises not kept and conditions not met. Would it not be better, they must wonder, to let Greece default and exit from the eurozone, rather than persist in paying such attention to its largely self-inflicted plight?
That Greece might indeed exit is now far from unthinkable. In a co-authored note published last week, Willem Buiter, chief economist of Citi and a devoted adherent of the euro project, judges that the likelihood of a Greek exit over the next 18 months is now as high as 50 per cent. “This is,” the authors add, “mostly because we consider the willingness of [eurozone] creditors to continue providing further support to Greece, despite Greek non-compliance with programme conditionality, to have fallen substantially.” But they also believe that the costs to the rest of the eurozone of a Greek exit are lower than before. The likelihood that this would be allowed to happen has, they suggest, risen correspondingly.
Let us consider the questions any sensible person should ask about the fraught negotiations with Greece.