Wednesday, May 16, 2012

Will everything else in the European economy be okay if Greece leaves the eurozone?

Financial Times Deutschland editor Wolfgang Münchau (Spiegel Online Griechen raus - und dann? 16.05.2012) thinks that European governments are floating the line that a Greek exit from the eurozone won't be such a big deal and speculates on why they think such a thing. Are they genuinely deluded? Are they looking just at the short-term politics? Do they really just want to break up the eurozone?

He describes what the eurozone and the EU would have to do in the case of a Greek exit to make it really no big deal. Things that it's virtually unimaginable at this point that they can or will do. My translation:

  • If we then in the case of a Greek exit pull the eurobond out of our hat, together with a European bank rescue fund;
  • if at the same time the European Central Bank sets up an unlimited program of buying up sovereign debt and in an accompanying press release also lets it be known that it has raised the inflation goal from "under two percent" to "over four percent";
  • if Wolfgang Schäuble becomes not only the chief of the Euro Group but also the European Finance Minister;
  • if we right away on the following day also agree on a fiscal union with a common budget and common tax levels;
  • if the [German] Federal Constitutional Court declares that it was wrong and from now on the European Union will be accepted as the foundation of sovereignty;
  • in other words, if a series of actions are taken, whose probability of occurrence is definitely under 100 percent, and also all of it is suggested, decided and ratified within 24 hours - then we are really prepared. Greece is out. The euro crisis is past. And we would finally talk about important topics like the upcoming Olympic Games.
And when he says their "probability of occurrence is definitely under 100 percent" and that it would all have to happen within 24 hours, he's using extreme sarcasm. The EU is more likely to repeal the law of gravity than do all that within 24 hours.

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