By Bernard Connolly (Economist)
- • We suspect that Germany has given up the ghost on Greece and now actually wants that country to leave
the euro area but is terrified of getting the blame when Greece leaves, as it surely must; so Germany has
to give Greece enough rope with which to hang itself.
- • In 2001, The US and the IMF, after Cavallo’s zero-deficit plan was announced, gave the Argentine
government enough rope to hang itself; the announcement of that plan was, rather than the salvation of
Convertibility, its death-knell.
- • In Greece, let us say it again, the second loan package will be the death-knell either of Greece as a
member of the EMMA1 or of Greece as a democratic polity.
- • Germany has more at stake, politically, in monetary union than the US had in Argentina’s unilateral
Convertibility; and the systemic financial consequence of Greek exit will be much more serious than those
of the abandonment of Convertibility.
- • The credit losses which must be implied by the EMMA credit bubble have still to be realised; they will be
very large indeed.
- • Counterparty suspicion, contagion to other cads and generalised financial panic would probably initially
ensue if Greece were to leave and re-denominate; a “Scandinavian-style” workout of the banking system
in Germany would be a sensible reaction (and Germany, unlike the Scandinavians two decades ago, does
not need currency depreciation).
• The alternatives to Greek exit would end up being enormously more expensive for Germany
full article can be seen on PDF DOC “The Rotten Heart of Europe“