Europe’s Greek tragedy has now entered its final act, with
potentially fateful consequences for the global economy—and for Barack
Obama, whose reelection may hinge on the decisions of Germany in the
coming weeks. The 2012 election will pivot on the public’s evaluation of
the president’s economic stewardship, and a perceptible decline in the
U.S. growth rate—which a badly handled Greek exit from the Eurozone
would cause—could easily spell the difference between victory and
defeat. Obama’s fate, then, may well lie in Angela Merkel’s hands. That
doesn’t mean, though, that there’s nothing he can do about it.
What are the economic stakes? Mark Cliffe, ING’s head of Financial
Markets Research, has conducted the most detailed analysis that I know
of. He examines two scenarios—a Greek exit from a Eurozone that remains
intact, and an exit that triggers a complete collapse of the European
monetary union. The consequences of the latter would be catastrophic. In
the first year alone, Eurozone GDP would fall by 9 percent. Inflation
in the “peripheral economies” such as Spain and Portugal would head
toward double digits, while the Eurozone core—especially Germany—would
suffer a “deflationary shock.” Because the dollar would surge in
relation to whatever national currencies might emerge, the United States
would undergo that shock as well, and the exchange-rate jolt to U.S.
competitiveness would reduce the odds of a sustained recovery in U.S.
exports—a cornerstone of Obama’s growth strategy.