"Michael Pettis at China Financial
Markets asks the question "Will Greece
unravel by Christmas?"
Pettis then makes a historical case for exactly that while stating "I don’t think Europe can postpone Greece’s exit much longer."
From Pettis, via Email, with Permission ....
Pettis then makes a historical case for exactly that while stating "I don’t think Europe can postpone Greece’s exit much longer."
From Pettis, via Email, with Permission ....
Will Greece unravel by Christmas?at http://globaleconomicanalysis.blogspot.com/2011/11/history-suggests-greece-will-freeze.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
President Hu left the G20 meeting in Cannes Saturday without committing China to very much, merely saying: “We believe Europe has the wisdom and ability to solve the debt problem.” At this point, however, regardless of the amount of wisdom floating around Brussels I think it is pretty unrealistic to expect a happy solution.
We’re well past that stage. By now, it seems to me, neither wisdom nor cooperation among world leaders is going to get us out of the debt and currency problems we face. Rather than try to prevent a major disruption the policy goal now should be to engineer as quickly as possible the least disorderly and disruptive unraveling of financial markets in the peripheral countries. And while it may help relieve frustration to excoriate European leaders for having made poor decisions, we shouldn’t assume that there really is a set of “right decisions” that will lead us out of this mess. I think there isn’t.
In Athens, the refusal by New Democracy yesterday to join Pasoc in a coalition government indicates just how difficult political cooperation is likely to become, and how drastically political horizons have shortened. What’s more, by forcing Papandreou to cancel the referendum just days after he announced it – in the face of white-knuckled threats from an enraged France and Germany – Athens has pretty much made clear just how desperate things are and how little room the leadership has to maneuver.
Indeed the whole issue of sovereignty has become fuzzy. Since France and Germany have basically exercised direct power over Greek’s electoral politics without assuming responsibility for solving Greece’s domestic problems, I can’t imagine that this won’t stoke even more resentment in Greece.
But it’s worse than just an issue of fuzzy sovereignty. Last week something new happened which cannot help but affect the near-term outlook. By openly speculating for the first time on Greece’s leaving the euro, Europe’s leaders have ensured that there is almost no chance now of preventing it from happening, and sooner even than most pessimists expected.
A country CAN leave the euro?
Not that there ever really was much of a chance, in my opinion, to keep Greece in the euro, but I assumed that European leaders would do whatever they could to postpone the day of reckoning until after the major elections this and next year. They would find ways, I thought, even if that meant putting more unemployment pressure on the middle and lower classes in Greece for another year or two.
But now I don’t think Europe can postpone Greece’s exit much longer. Statements by France and Germany may have transformed the dynamics of the crisis affecting Greece.
By openly acknowledging that Greece could abandon the euro, Europe’s leaders may have set in motion events that will automatically force Greece to leave. Here is the logic. If Greece is ever forced to leave the euro, it will first have to redenominate domestic corporate and household liabilities into the new currency – let’s call it the drachma – or else domestic borrowers will be wiped out by the fall in the value of revenues relative to debt as the drachma immediately depreciates against the euro..."
