Eurozone crisis moves ever closer as Greek left gains ground
AN ideas factory: that was the best way to describe Morning Wire’s extraordinarily well-attended investment conference, held yesterday. The Eurozone was at the top of everybody’s agenda. Even before the news last night that the Greek far-left party Syriza had hit 30 per cent in the opinion polls, most of the speakers were only divided about when, not if, Greece would be leaving the euro. For the first time since the single currency was launched, the non-conformist, minority view is that the Eurozone will remain intact – the mainstream opinion is now that at least two countries will leave – Greece and Cyprus.
The exact timing of a Grexit remains unclear – I’m convinced it will happen much faster than most people realise, other speakers yesterday disagreed – but it all hinges on next month’s election. If the pro-austerity parties pull off a surprise victory, then the crisis could be delayed – if not, it will come to a head very quickly. In an interview with Channel Four last night, Syriza’s leader Alexis Tsipras confirmed yet again that he is utterly deluded about Germany’s bargaining position. He rejects austerity and even an internal devaluation; yet he believes that Angela Merkel is bluffing and that she will blink first in a showdown with Greece because she would have too much to lose from a Eurozone break-up and the risk of contagion. He even likened it to a cold war and claimed that neither side will dare activate their nuclear weapons – in other words, that he can reject austerity, stay in the euro, thumb his nose at the Eurozone and yet continue to pocket free money.
The problem for Tsipras is that Germany and its allies are not bluffing. They can’t afford to see Greece get away with openly defying them and not suffering any consequences. His gamble is bound to fail – and spectacularly so, unless of course he is playing a double-game and actually wants to leave the single currency. He will refuse to play ball – and they will cut off the cash, which will run out in July. Tsipras, who believes that austerity cannot be implemented in Greece, will end up presiding over far more austerity than anybody could have possibly imagined – immediately after the uncontrolled default, banking collapse, euro exit and social chaos. Assuming he is then removed from office, and replaced by a relatively centrist government, Greece would eventually bounce back, with its new drachma making the country competitive again for tourism.
But not all of the ideas discussed yesterday were about the Eurozone. Tim Guinness, the veteran City fund manager, rightly highlighted some of the game changers that could have a huge impact on business and the world over the next few years. One was the spread of fibre-optics and ultra-fast broadband, which will herald huge behavioural shifts, a revolution in the availability of downloadable video content and a further growth in videoconferencing. It will also fuel the growing trend towards distance learning, which is often free and provided by top universities, a development which could have huge implications over the next few decades. Another interesting change is that the price of photovoltaics, the panels that turn solar radiation into electricity, is tumbling, partly because massive demand from China has created economies of scale and breakthroughs in their production. Solar energy is thus becoming much more viable; the question, of course, is how much electricity as a share of total demand can viably be generated in this way. The Eurozone is in crisis – but technology continues to power ahead, the one ray of light in an otherwise bleak world.