Greece’s membership of the euro is still tenuous

7/11/2017

By Matthew C Klein

There is almost no precedent for what has happened to Greece since 2008. Yet despite the salutary counterexamples of emerging markets that let their currencies float to provide monetary stimulus, Greece has thus far determined to remain a member of the euro area.

Some attribute this to love: the latest Eurobarometer survey shows 64 per cent of Greeks support “a European economic and monetary union with one single currency, the euro”, while only 32 per cent are opposed. Others attribute it to fear: the last time Greeks questioned their membership of the euro — in the summer of 2015 — the result was bank closures and a renewed economic downturn.

The darker possibility is that support for the euro is more fragile than the headline numbers suggest. We recently had a chance to hear a presentation from Stefanie Walter of the University of Zurich that touched on some of these issues.

First, consider this breakdown of who wanted to keep the euro and who wanted to leave at the end of 2015:

More than half of all Greeks agreed it was a mistake to have joined the euro. Barely a third of Greeks thought the euro wasn’t a mistake. Even among those who wanted to remain in the euro area at the end of 2015, fewer than half would have chosen to join again if given the chance to go back in time and warn their fellow citizens.

That survey took place almost two years ago. Since then, Walter finds that support for the euro has dropped by 10 percentage points. The shallowness of the support revealed in 2015 presaged the subsequent decline. Now only 55 per cent of Greeks would keep the single currency if it were possible to reintroduce the drachma as a member of the European Union:

Euro-optimists believed the capital controls and political crisis of mid-2015 would crush any desire to exit the monetary union. But the survey data show that Greeks have progressively soured on the euro since then. Walter’s theory is that the crisis of 2015 made explicit to regular Greeks what was long known to economists and officials: choosing to keep the euro means choosing austerity imposed from abroad. Before 2015, the link was less obvious.

None of this means that Greece is poised to leave any time soon. The official position is that it is impossible to leave the euro while remaining in the EU, and leaving the EU is something few Greeks are interested in. But analysts should not overestimate the durability of the single currency. Fear is what has held it together. This same fear, however, has bred resentment that still threatens to drive the euro apart.

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