Greek election to send euro zone into deeper crisis
Stefan Auer says a break-up is possible if Greece abandons austerity
The euro zone is this week heading towards a perfect storm. The market turbulence caused by the sudden surge of the Swiss franc is a foretaste of more instability in Europe and globally. The euro zone crisis is about to be revived where it started almost exactly five years ago: in Greece.
General elections there this Sunday are expected to bring about the victory of Syriza, a populist party opposed to the austerity policies that Greece has been subject to in exchange for European Union bailouts.
Before then, the European Central Bank is set to announce a massive programme of quantitative easing aimed at reducing the threat of deflation and helping to revive growth in Europe's peripheries, including Greece.
The decisions taken this week will shape the nature of the euro and EU's crisis management for years to come. The euro was meant to be a German currency: hard and dependable. It remains of great symbolic importance, for example, that the ECB's seat is in Frankfurt. Its mandate, like that of its predecessor, the German Bundesbank, focuses on price stability, not growth.
ECB measures to be announced on Thursday are meant to make the euro weaker. They will either be insufficiently ambitious for the markets, or too ambitious for Germany - both outcomes will create problems. The German constitutional court, for example, has yet to rule on the legality of the ECB's outright monetary transactions programme to buy government bonds. Even more uncertainty is bound to follow if Syriza wins. Just as the ECB might not do enough, soon enough, to fight deflation, the German government might not do enough to pacify Greece. Both the ECB and the German government are constrained by EU law, the German constitution and prevalent public opinion in Germany, which holds that those who violated rules should be punished, not rewarded.
With Greece and Germany heading towards a major confrontation about the handling of the euro zone crisis, Europe's unity is threatened. A partial disintegration of the single European currency cannot be ruled out. A Greek exit would be painful for Greece in the short and medium term, and would take Europe as a whole into uncharted territory.