EU: Will Greece drag the euro down with it?

“We may have to buy drachmas for our next Greek vacation,” said Martin Jasminsky in Hospodarske Noviny (Czech Republic). Greece’s failure to form a government out of the squabbling mess of fringe parties it elected to parliament this month means that another round of elections is in store—and the markets have lost confidence that the country will ever get its financial house in order. Even though all the EU finance ministers publicly said this week that Greece should stay in the euro zone, privately they are all murmuring that jettisoning Greece might be unavoidable. “The politicians are now thinking much more about how to deal with the consequences for Spain, Italy, and Portugal than about keeping Athens in the monetary union.”

The consequences of a Greek exit could be disastrous, said Bruno Proença in Diário Económico (Portugal). Without Greece on its books, the EU just might have the resources to protect the rest of its struggling southern economies. More likely, though, “we would experience a domino effect that would put paid to the euro for good.” Even if the euro were to survive, a Greek exit would be bad for European security, said José Ignacio Torreblanca in El País (Spain). Cut off from EU trade, Greece would sink into extremism and poverty and turn against NATO, paving the way for “increased tension” with Turkey and a new failed state on Europe’s southern border.

Greece is already turning toward extremism, said Der Spiegel (Germany) in an editorial. Look at the latest elections: Far-right and far-left parties that opposed austerity gained, while centrists were hammered. It looks a lot like “Germany in the 1920s, during the Weimar Republic,” when Germans were so fed up with austerity that they turned to the Nazis. But Greeks can avoid such a “shameful” fate by turning back to their own currency. They could then devalue the drachma, making imports more expensive and exports cheaper, and spurring production and employment at home. This would not amount to being drummed out of the EU. “Solidarity among European countries is not tied to membership of the euro,” and other countries, including Germany, would certainly “help Greece with its huge debts.”

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The good-bye would be painful at first, said Arvind Subramanian in the Financial Times. There would be a long period of financial chaos, while all contracts were rewritten in drachmas. “Most politically devastating, fiscal austerity might actually need to intensify” at first, since Greece would find itself without the money from Europe and the IMF flowing in. But ultimately, the devalued currency would reorient the economy, and “Greek growth would probably surge.” It could even soar enough to make Spain and other troubled countries want to unshackle themselves from the euro, too.