© Daniel Lenz
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I totally agree with the majority opinion that Greece should remain within the Euro zone, which was expressed by couple of political leaders and also by the ECB and IMF, due to the fact there seem to be not only economic, but also political risks in the case of a Grexit scenario. I believe that in an ideal case, Greece would stick to reforms in order to prevent a default, but I am not sure whether currently everything is being done for that. Greece itself seems not to be very eager to follow these reforms. If the European government wants Greece not to default by all means, the easiest way to avoid it will be to give a new loan to Greece. However, there also seems to be a lack of willingness to do this without any commitment by the Greek government to stick to formally proposed reforms, since they are actually initiated by the former Greek government. In addition, there is emphasis on fiscal authority, which is not what the new Greek government wants.
All the latest measures point very much in the direction that there is no interest in sticking to this path. Fiscal expenditures remain stable or even increase, and structural issues are also very much asked by lenders. However, Greek structural reforms are not continued to be implemented. For instance, in case of privatisations, there still is a standstill.
On the questions of competitiveness on bureaucracy etc., nothing is happening as well. However, this is very much the key issue which would be needed for convincing the EU countries that Greece remains on the beat track. That is why we believe there is a huge discrepancy between the position of Greece on the one hand side and the Euro group on the other. Currently, we seem to be seeing more of a dead lock, along with a higher risk this may lead to a default. Still, even if it happens, that does not mean Greece has to leave the Euro zone, since it could default within the Euro group.
The big question, whether Greece will leave the Euro zone or not, remains unanswerable. Hence, a lot of economists are certain that the country will default even if the reforms are implemented. What further development of the situation do you see in particular and what effects the deflation may have to the Euro zone?
In a very short run, of course, there could be some market turbulences, much like what we have seen in recent days. However, increasingly bad news coming from Greece has already led to spread widening within the periphery.There could be some market turmoil, though it is likely to be very limited due to the fact that we have the Public Sector Purchase Programme, along with the central banks that are going into the market asking for bonds in huge sizes. The risk of big spread widening is very limited, and it should be not only limited in sizes, but also in time. Regarding the economic impact, it is probably not that big for the rest of the Euro zone.
Greece itself has a very minute share in the overall GDP of the Euro zone. Most European companies and banks know about the situation in Greece, and majority of them are prepared in case of a default. We are sure that a default within the Euro zone would trigger much fewer risks in comparison with a Grexit scenario that would incur much more damage; this was also recently outlined by the IMF. However, the impact for the Greek nation, of course, would be far bigger. If it was just a default within the Euro zone, the impact for the Euro zone would be rather limited and for Greece itself as well it is not comparable with the Grexit scenario.