For the past several days, the technocrats of Europe have been swearing on a stack of Bibles (figuratively, they don't actually believe what the Bible teaches) that there were no plans on Greece exiting the Euro, and the idea was unthinkable. Well, like most of their pronouncements, this also was false.
This article reports that, in fact, the EU has been preparing for a Greek exit:
European Union trade commissioner Karel De Gucht said that both the European Commission and the European Central Bank (ECB) were working behind the scenes on contingency plans for a break-up.
“Today there are in the European Central Bank, as well as in the Commission, services working on emergency scenarios if Greece shouldn’t make it. A Greek exit does not mean the end of the euro, as some claim,” he said.
The first public declaration that preparations are in place came as economists at UBS said European taxpayers would have to swallow losses on Greece, whether or not it remains a member of the currency union.
Under a best case scenario, which would see Greece remain inside the euro but its colossal €274bn of outstanding debt put on a more sustainable path, UBS said European taxpayers would have to write-off €60bn of the €182bn of rescue loans they have provided.
If Greece was to leave the euro, however, the bill would jump to at least €225bn as the new currency would halve in value and €104bn of additional emergency funding by the ECB would be wiped out.
Contagion to the banking sector and across the eurozone, coupled with the economic damage that would cause, would lead to further unquantifiable costs. Other economists have estimated the final bill at nearly €800bn. UBS said the losses would cripple the ECB, which would need to be recapitalised.
The International Monetary Fund, which has contributed €22bn to the Greek rescue so far, would probably be treated as a preferential creditor and be protected, the analysts said, so UK taxpayers would not lose out directly.
However, the economic spill-over would plunge Britain into a deep recession from which it might never fully recover.
This article states that the G-8 Summit leaders have stated that Greece must stay part of the European monetary union. However, it also notes:
In the end, the gods of the copybook headings must be appeased:
Jose Manuel Barroso, President of the European Commission, said he would not entertain a “Plan B” for Greece, and that the focus remained on a “Plan A” with Greece part of the eurozone.Ironically, however, banks foresee that a Greek exit would actually boost the value of the Euro.
Attempts to move the debate to how Greece might be able to remain a member of the eurozone follow a terrible week for the region which made a Greek exit seem more likely than ever.
Germany was left isolated after Angela Merkel spoke for the first time about a possible Greek exit early in the week. She was also under increasing pressure to ease her demands for austerity, after Mr Obama joined France and Italy in a pro-growth stance.
A draft of the G8 communique last night showed leaders stressed an “imperative to create growth and jobs.”
On Tuesday Greek politicians said they had failed to agree to a new Coalition Government, paving the way for a second election on June 17.
Two polls on Saturday suggested Greece’s anti-bailout leftist Syriza party is neck-and-neck with the pro-bailout New Democracy party.
The fear among policymakers, investors, and economists alike is that the Greek banking system will not be able to survive as long as the election, as people have already withdrawn hundreds of millions of euros in deposits from Greek banks.
In the end, the gods of the copybook headings must be appeased:
AS I PASS through my incarnations in every age and race,--Kipling
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.
We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.
We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.
With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.
When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."
On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.
As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!