A bigger immediate threat is that a Greek exit from the euro – rated as a 50-75% probability by Citigroup – will have a domino effect on Portugal, Spain and Italy.

Jason Conibear, director of foreign exchange firm Cambridge Mercantile, said the euro was currently as attractive to investors as a toxic derivative during the sub-prime crisis: \”There\’s every chance the euro will go into freefall in the weeks ahead against all the major currencies. Investors are waking up to the fact that the once-ridiculous notion the euro could collapse is increasingly the most likely outcome.\”

It was a ludicrous thing to have in the first place and the sooner its gone the better.

Gonna be painful but it\’ll be a lot more painful to keep it.

Looking around southern Portugal economic activity is simply grinding to a halt. Leaving the euro, expanding the money supply, defaulting on the debt, devaluing the currency. These aren\’t, as some seem to think, heterodox or unusual prescriptions.

They are, in fact, the straight old IMF prescriptions for countries in this situation. This is just mainstream economics.

14 thoughts on “Good”

  1. If I were being selfish, I’d rather keep them all in the the summer; it should drag the euro down and make my holiday in France (and the huge amount of wine I plan to bring back) even cheaper.

  2. If economic activity is grinding to a halt because the euro is worth too much then people are gonna have to accept fewer euros to do stuff.

    What is the difference between accepting 30% fewer euros to do something, and accepting the same number of New Escudos valued at a 30% discount to the euro?

    Tim adds: In essence? Nothing.

    However, the currency route does it simply all in one single change. The internal devaluation method requires a grind of years of austerity. Better to do it the simple and easy way…..

  3. Or, as I think you made the point before, this is all partly because Germany has been on a decade-long internal devaluation binge, therefore everyone else either has to follow suit or quit the euro.

  4. UBS estimates a cost of leaving as €9,000 per Greek. Politicians warn of another war.
    Does anyone believe such stuff?

  5. re #3, doing it within a currency requires large nominal pay-cuts and benefits cuts. Even if that’s the better route, a currency change is probably easier.

    But in the longer term, it’s much easier to have a floating currency than to keep having alternate nominal pay rises and pay cuts to keep productivity in line.

  6. Frances Coppola

    Greece leaving the Euro? Can’t come too soon for me. High time this farce ended.

  7. Frances, if we want to bring down the whole euro project, rather than just pick bits off the edges, then we want Greece to stay in for as long as possible.

    That way the problems get even worse, and when it goes the whole thing goes.

    Plus while we wait for that happy event, we get cheaper holidays in the non-Med eurozone; perhaps time to visit Germany, the Netherlands or Finland before their currencies bounce up once they’re unshackled from the Club Med disasters.

  8. So Much For Subtlety

    I am not sure I want Greece to leave the Euro. I think I want Germany to do so. That is probably the least painful option. Best for the Germans too although tough on German manufacturers.

    But still, as long as it all collapses soon.

  9. A bit of 1066 an all

    We got scrwed by the Vikings, Angles, Danes, Saxons, Jutes & Normans.
    But once mixed we saw off the frogs, the hun, the Turk… (Oh sorry, that wasn’t us. That was Venice & the mafia, or the Austrians.) And we got rid of the Barbary pirates. (Thanks to the new US Navy taking target practice at Algiers.)

    Meanwhile we competed to produce the most argumentative and innovative society on earth.

    Lesson: Disunity is Progress. (Or to translate into Worstallese, the free market works, later.)

  10. Hasn’t it already been demonstrated that Greece can stay in without causing any problems?

    What’s to stop them becoming serial defaulters? Reject the bailouts, bite the hand that feeds and so on? As they already managed it once without the currency collapsing they can just do it again and again. Sure, they create problems for themselves but really not one they can solve by exiting the euro – indeed Greece can only possibly be less creditworthy with its own currency.

  11. So Much For Subtlety

    JamesV – “What’s to stop them becoming serial defaulters?”

    Indeed. Reward them for bad behaviour and they will just do it again. This could be a yearly event. The Running of the Bullsh!tters.

    “Sure, they create problems for themselves but really not one they can solve by exiting the euro – indeed Greece can only possibly be less creditworthy with its own currency.”

    Well if they have their own currency they can devalue and so impoverish Greeks impartially and evenly. Whereas the present policy of austerity will bleed the economy over time and the weakest will be destroyed. Leaving, with luck, the strongest parts of the economy still standing. Or the fortunately timed.

    Greece is not enough. The question is how far do I want to see it go. I think the biggest issue is the Spanish banking sector. Do Spanish people have a gift for banking? Do they have some high and secret stash of savings only they have access to? I would say no and no. Although the Spanish government may be friendly with some Gulf states but I doubt it.

    Yet they not only bought the Latin American banking sector, pretty much all of it, but they also bought parts of the British banking sector.

    Which suggests to me they are Iceland in disguise.

    If the midden hits the windmill and the Spanish banks really do have a rendezvous with reality we will all feel the pain – but the Euro will not be able to survive.

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