This morning’s New York Times had an authoritative analysis of Greece’s imploding economy. The article hints that the global financial community is bracing itself for a Greek exit from the euro zone, yet it doesn’t address the implications for the United States, especially for this year’s elections.
Greece is going – the only remaining question is not if, but when.
As Professor Niall Ferguson noted yesterday at the Agora Financial Investment Symposium, when Greece leaves, there is a strong possibility of a global financial contagion – like a killer virus that spreads on contact – which will cross the Atlantic, paralyze banks and Wall Street, and tip the US into a financial crisis equal to that of 2008.
If that happens before November 6, it will almost certainly cost Obama the election.
Few Americans are aware of how much the Obama administration fears this scenario, and how US officials are working behind the scenes to buy as much time as possible. My sources indicate that German and other northern European leaders have assured Obama’s team that they will try to keep Greece on financial life support until some time after the US elections and before Christmas. (This will also be a safe distance from the German elections in September 2013, which I predict will keep Angela Merkel and her Christian Democrats in power).
Greece’s lifeline will be cut off, forcing the benighted little country out of the euro zone.
I think this will ultimately be a good thing for the European Union and the shaky global financial markets, like lancing a boil. Greece’s exit will accomplish three things: 1) eliminating a problematic member of the euro zone that is systemically unable to follow EU rules, 2) sending a message to other euro members to be more disciplined, and 3) the ensuing turbulence in the financial markets after Greece leaves may scare the German people enough to do whatever it takes to save the remainder of the euro zone (the German public’s dissatisfaction with paying for euro rescue packages is the reason why Germany has been dragging its Birkenstocks during the last three years).
Will the economic crisis in the “Cradle of Western Democracy” cost Obama the election? As the old saying goes, timing is everything, and my prediction is that Greece will be kept alive until after the election. If so, that’s good news for Obama.
But watch out after that. 2013 is going to be a very rough year.