From May 26th 2012
The world seems to have polarised into the majority that expects Greece to leave the Euro at some point in the next few weeks or months, and those that think that Germany will cave-in and bail out all its peripheral cousins for all time.
In the red corner stands the world of Finance and in the blue corner we have the Eurocracy, the Central Banks, Jim Rickards and Niall Ferguson. The Germans of course have their heads in the red corner and their hearts in the blue.
It cannot work shout the reds; monetary union will only sustain with a single pan-European fiscal and political structure. Only when this has been achieved can true eurobonds be launched, and north to south financial transfers become a permanant feature of the Euro landscape.
It will cost too much for Greece to exit suggest the blues. Contagion will spread instantly, the economic sky will collapse, to be followed by a financial nuclear winter of misery for all. The 80% of Germans who oppose eurobonds will see sense over the next few weeks and underwrite a Merkel super-bailout in June.
Meanwhile Greece suffers. It wants the Euro but can’t afford to pay its price. Voters think that Germany will blink and that a less austere bailout package will be tabled by the end of June.
Positions appear to becoming entrenched.
Suppose that Greece votes for the Euro but against austerity as is currently expected.
And that the bailout 3 talks fail in late June, if indeed the markets don’t force a situation earlier.
What would happen if Greece decided to stay with the Euro but default on its sovereign debts?
The European and North American credit markets would certainly close, and Greece would have to live within its tax base means. But it could still retain the Euro. In other words become Montenegro. The Greek people would get what they voted for, the Euro and no bailout austerity.
I have visited Montenegro. It has some stunning coastline and a growing tourist industry particularly favoured by Russians. Other than the vast quantities of Russians the other aspect that hits you very quickly is their use of the Euro. They are not in the Euro nor do they print Euros, but they do successfully use it. And the punchline is that the EU acquiesce to its use.
What would stop Greece emulating Montenegro?
After all, the June 17th election is effectively a plebiscite on a ‘yes to the euro/no to bailout austerity’ proposition. Living within their means would be tough. But would it be tougher than having a mathematically unpayable hundreds of eurobillions round its neck for at least a generation?
And would the EU want to be seen kicking a member state out of the Euro?
Interesting times indeed.