The euro is not having a happy new year.
The currency crashed to a nine-year low against the U.S. dollar, partly due to a warning from Germany. The German government reportedly said that if Greece’s anti-austerity Syriza party wins this month’s snap election, and reneges on some of the conditions of the country’s bailout, Greece could face default and be forced out of the euro.
Is that such a bad thing? Germans apparently believe that the eurozone could now cope with a Greek exit. Unlike at the height of the crisis three years ago, the European Central Bank will now buy unlimited amounts of the government bonds of a eurozone country that comes under speculative attack. That move should prevent the contagion spreading to other member states.
Some analysts are skeptical and point to the danger of political contagion. If, with International Monetary Fund help, Greece leaves the eurozone, throws off the shackles of austerity and starts to grow strongly again, would other heavily indebted and austerity-weary eurozone states be tempted follow suit?
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