EZ break-up stands to benefit the core

I’ve argued elsewhere on this blog that the weaker countries in the EZ stand to benefit from abandoning the euro. Rather than undergo an endless process of retrenchment inside the single currency, they could grow much faster following a nominal devaluation outside the euro area. This would not just benefit the peripheral countries, however. The core countries stand to gain from weaker countries abandoning the common currency as well. Read more of this post

German proposal for Greece’s compliance: accelerating eurozone exit

At the top of my list of to do’s for the past few weeks has been to update the post on Greek PSI that I wrote just before Christmas to include some more recent developments, such as the prospect of ECB participation. Last night, Peter Spiegel from the Financial Times (@SpiegelPeter) published the German government’s proposal for Greece’s “improvement of compliance” with the terms of the bailout, and all of a sudden Greek PSI positively pales in comparison. According to Germany’s proposal, whatever the result of the PSI deal, Greece will need to “legally commit itself to giving absolute priority to future debt service” and “accept shifting budgetary sovereignty to the European level”. If the Greek government is not willing to do this, the troika would presumably turn off the taps of bailout money and Greece would default. With no access to market or official financing, Greece would be forced to exit the eurozone. Read more of this post

Composition of Greek Government Doesn’t Really Matter

Today has been a whirlwind of rumours coming out of Greece. One thing seems clear: a referendum is off the table now. What remains unclear is what will happen to the government. Ultimately, it doesn’t really matter what the composition of the Greek government is. Read more of this post

Greece’s referendum: The Great ‘Greek Out’

You could be forgiven for wondering if Greek prime minister George Papandreou has fully lost it. Late Monday night, he announced that he would hold a referendum on the second bailout package that had been painstakingly agreed for Greece less than a week prior. The announcement took European leaders, the European Commission and key members of the ruling Pasok government (such as finance minister Evangelos Venizelos) by complete and utter surprise. Markets reacted with panic, pushing Italian ten-year government bond yields to record highs and forcing EFSF officials to delay a bond issue for fear of lack of investor demand. If there is a Greek referendum, it could change the choreography but not the ultimate endgame for Greece: an exit from the eurozone. This change in choreography could make the difference between life and death for the euro, however. Read more of this post


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