Joining the single European currency should have been such a panacea that nobody needed to consider a mechanism whereby a state could detach itself from the dream. Mechanisms don’t exist (yet) that cover a nation either choosing to leave or being booted out of the Euro, but precedent can always be set. It is accepted that Greece fiddled the books when seeking to join the Euro at its inception. Whether or not France and Germany connived with the deception to bolster the initial uptake of the single currency is neither here nor there – the Greek government of the day falsified its books to meet Eurozone convergence criteria and so should never have been a Euro state nation in the first place. That and the current Greek governments unwillingness to be bound to the bailout terms agreed to by its predecessors in order to secure a total of €240 billion in international funding which otherwise would have seen the nation sink into full sovereign default in 2010 must provide adequate ammunition for Greece to be booted out of the Euro. The only people unmoved by this logic seem to be the Greeks themselves.
If Greece leaves the Euro and re-embraces the Drachma, its international debts denominated in Euros will remain the same. A new Greek currency would go down like a lead balloon, but after weathering the storm, the Euro would largely hold its value. The cost of imported goods to Greece would rocket and their chances of securing international money market funding at a reasonable rate would be nil. If the EU kicks Greece out of the Eurozone, and possibly the EU, its fiscal credibility will only be bolstered – We are serious about member states following the rules and honouring their commitments: you can see that playing well.
So what now?
For Greeks whose assets are currently in Euros, the wise move would be to liquidate them for hard currency – Euros today – since those assets would be hard hit if a new Drachma were to depreciate (as it must). Consequently, there has been a bit of a run on the banks. The ECB, in the face of the current climate, has refused to accept Greek bonds as collateral for loans, increasing pressure on Athens to come to its senses. The ECB has offered to make a further €3.3 billion available to Greek banks under its Emergency liquidity Assistance scheme (ELA). It is understood that the Greek central bank had requested €10 billion – this is separate to the Greek government’s “bridging loan” request. JP Morgan estimates that Greek citizens are withdrawing about €2 billion a week from Greek banks in these uncertain times.
Eurozone nations have given Greece until the end of this week to decide if they want to extend the existing bailout – under the existing terms. The Greek Prime Minister Alexis Tsipras said on Tuesday that: "We will not succumb to psychological blackmail. We are not in a hurry and we will not compromise." One could be forgiven for thinking that he has yet to comprehend the gravity of the situation for his country – the Eurozone wants Greece to stay aboard, but not at any price.