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From Brexit to Grexit: Will Trump Force A Collapse of the Eurozone?

Greece’s exit from the Eurozone in 2017 will probably be the first default in Europe that Trump will have to confront. The imminent Grexit will bring the EU further closer to the edge of the cliff after Brexit. Unlike his predecessor, Trump seems not to have any specific plan how to protect the US economy from an another one financial turmoil in Europe.

From Brexit to Grexit: Will Trump Force A Collapse of the Eurozone?

Trump's presidency is likely to face its first Eurozone test within a few months with an imminent default by Greece on its outstanding obligations. But unlike President Obama, Trump seems to have no plan on how to control the current financial turmoil, which could prove more severe than in 2010-11, when several European economies were deemed unreliable by the financial markets.

Back then, as the European Union leaders themselves later admitted, the Obama administration played a crucial role in ensuring the stability of the Eurozone. In 2010, financial markets considered certain Eurozone economies such as Greece financially unstable and refused to provide them with new loans. The White House adopted a stance of interconnectedness between the economies on the two sides of the Atlantic, arguing it would have been impossible for the American economy to return to prosperity and growth after the financial crisis 2008 had Europe allowed economies to default. The U.S. addressed this uncertainty with its most powerful instrument: the International Monetary Fund (IMF). The IMF's active involvement in European rescues meant that many countries, such as Greece, became indirectly supported by the U.S.

Republicans have long criticized the administration’s policy of remaining actively involved in EU affairs, arguing that the IMF's loans had been made with American taxpayers’ money. In contrast to the Department of Treasury’s actions under Obama, Republicans consistently opposed assuming the debts of struggling European countries. Other countries, such as Brazil, which participated in the IMF's executive board meetings and make yearly contributions to the Fund, were also skeptical about lending money in the hopes of preventing certain European economies from falling apart.

In the years following the first bailouts, concerns in Europe continued to grow. If a single Eurozone economy were to default, this could eventually demolish the shared currency and the EU project itself. Obama continued to support the view that this would negatively affect the American economy’s efforts to sustain its recovery. But Republicans did not share his concerns.

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With Greece’s six-year struggle to meet its fiscal goals--and to keep its reform promises to lenders such as Germany and the International Monetary Fund--a worst-case scenario and a “Grexit” seems more and more inevitable. This year likely will see crucial and determining general elections in both France and Germany, whose own citizens are growing increasingly frustrated over the migrant crisis, unprecedented unemployment,  and uncertainty about their future. That political landscape will exacerbate the situation for Greece as it runs out of time pay its debts and bolster its economy. The country has already received an unofficial ultimatum from Europe: German Chancellor Merkel and other European leaders warned that they do not intend to lose elections by allowing Greece, or any corrupt political elites, additional time to comply with their obligations. Yet if austerity measures are implemented as planned, Greece will officially wind up as the poorest among the EU and Balkan countries. Because of this, Capital Economics, a prominent London-based consultancy group, has predicted that Greece is expected to be the second EU country after Britain to abandon the Eurozone in 2017.

A shift in U.S. policy could accelerate this. Trump himself recently actually encouraged Greece to exit the Eurozone, in a manner similar to how he has prompted other European countries to abandon the EU. Trump is further expected to withhold consent for the IMF to provide Greece further loans to pay off its existing debts, which could precipitate of credit crisis. Thus, unlike the Obama administration, which helped averted the EU’s demise in 2010, the new U.S. government apparently plans to press for the precise opposite: propelling the EU towards its total collapse.