In these perilous economic times, Greece, Portugal and Spain are likely to be left to take the Doctor's advice given in Shakespeare's "MacBeth".
Macbeth:
Canst thou not minister to a mind
diseas'd,
Pluck from the memory a rooted sorrow,
Raze out the written
troubles of the brain,
And with some sweet oblivious antidote
Cleanse the
stuff'd bosom of that perilous stuff
Which weighs upon the heart?
Doctor:
Therein the patient
Must minister to
himself.
The irritation of the eurozone with Greece is at extreme levels. After all, 80 per cent of Greeks say they are in favour of staying in the euro, but then they fail to elect politicians prepared to implement the agreed programme. This drives creditors crazy. Increasingly, the latter are inclined to accept Greek exit, even welcome it. But they should be careful what they wish for.
A departure would create severe dangers. The danger of contagion is obvious. The long-run danger is more subtle. But the euro zone either is an irrevocable currency union or it is not. If countries in difficulty leave, it is not. It is then an exceptionally rigid fixed-currency system. That would have two dire results: people would not trust in its survival and the economic benefits of the single currency would largely disappear.
These perils are not of concern to the euro zone alone. Taken as a whole, this is the world’s second-largest economy, with the largest banking system. The risk that a bigger euro zone upheaval would cause a global crisis is real. As frightening is the likelihood that euro zone crises would become permanent features of the world economy.
If Greece leaves, the euro zone will have to change fundamentally to make survival less painful and therefore more credible. If that is impossible, as many suppose, irrevocability must be seen as a mirage, which would in turn guarantee the repetition of large crises. It also destroys the economic arguments for the currency union by undermining financial integration and rendering long-term investments dependent on access to the entire euro zone economy far riskier. It is a nightmare.
Greek exit then would create a choice between big moves to a stronger union and a future of endless crises. It is a choice the dominant creditor nation, Germany, must make – among big steps to integration that horrify many of its people, a future of horrible crises or a horrible break up right now. No good choices exist. But the euro zone must become a stronger union or it will disappear.
Greece is cooked. In four weeks Grecians will wake up to find themselves without a currency. The drachma will be revived. Until the transition from the euro to the drachma completes, Grecians will find themselves in a barter economy.
Portugal is the next bowling pin to tumble. Unfortunately for Spanish banks that hold $65 billion in Portuguese debt, Spanish banks will find themselves in a severe liquidity crisis having to absorb this enormous loss.
Forward thinking Europeans are already preparing for the worst. Runs are being made on Euro bank assets. Not the type of bank runs we remember from the depression with bank customers lining up demanding cash. Modern bank runs are performed online with a mouse and a click, removing cash via withdrawals or purchases of bonds.
This week European Union leaders will meet on Wednesday May 23rd to strategize short term stop gaps for the banking contagion that will spread with the fall of the Grecian economy. Failure to back stop Spanish banks will accelerate downward momentum in crude, gas and heating oil futures.
