WASHINGTON (Sputnik) — The European Union and the international financial system can survive a Greek exit from the Eurozone, or Grexit, but a greater danger is that it could set off a domino's effect forcing Spain and Italy to pull out as well, experts told Sputnik.
“As long as it’s just Greece, then I think the consequences for the United States will be very limited, and that’s because the US market already have factored in, that they’ve priced in a high probability of Greek exit,” Institute for Economic Affairs Deputy Editorial Director Richard Wellings in London said on Thursday.
The big danger obviously is Spain and Italy, he added because “they’re such huge countries, particularly Italy has got such enormous debt that could potentially destabilize the whole global financial system.”
Center for Economic and Policy Research Co-Director Mark Weisbrot agreed that a Grexit might be successfully managed, but it could set off far more serious repercussions.
“For the United States and the global economy, it's difficult to predict the impact because a lot would depend on the response of the ECB [European Central Bank],” Weisbrot said. “If [the ECB response] is inadequate, it could cause a serious international financial crisis.”
Weisbrot added, the European Union institutions need to reach an agreement with Greece that would allow its economy to recover and “reduce the burden of the recession on the poor.”
“What shocked them was the sheer scale of the current financial crisis,” Wellings said. “Greece and some of the other countries have faced full-blown depression on a scale similar to the United States in the 1930s, and that’s what they didn’t expect.”
If financial confidence is destroyed across the European Union, Wellings warned, “then the whole financial system starts to gum up again and it’s tough.”
He feared that escalating financial crisis in Europe would have very damaging consequences on the United States “because they have huge investments in Europe” and also because “the banking system between Europe and the United States is very closely connected.”
However, Weisbrot said any successful long-term solution for the Greek economy would have to include jump-starting an economic recovery there.
A successful recovery plan for Greece would also have to include “debt relief, since Greece's debt is unsustainable, as even the International Monetary Fund has recognized,” the expert added.
Wellings predicted the European Union would eventually survive the crisis and any Greek exit from the currency.
“That’s because there’s just so much political capital that has been invested by the European Union elite toward this centralization project. [They] would be very reluctant to see it break up and they’ll throw everything at the problem to try and stop it breaking up,” he added.
The European Union “could probably live with Greece leaving like a small and peripheral country,” Wellings stated.
However, Wellings concluded, European Union policy makers would be very reluctant to let some of the bigger nations like Spain and Italy leave the Eurozone.