ECB prepares legal ground for a euro break-up
The WSJ reports that Greece's growing budget deficit and worries that the government will struggle to repair the state's finances will dominate this week's meeting of EU finance ministers, which begins today. Writing in the paper, Managing Director at Standard & Poor's Ratings Services Moritz Kraemer looks at the sustainability of the euro and notes that, "Once the preserve of fringe political commentators, speculation about the possibility of a eurozone break-up has now crept into mainstream economic and political debate." However, he argues "the possibility of such an event remains remote...eurozone governments are aware of the risks associated with exiting the eurozone and the potential costs of such an action for their economies. They understand what is at stake and that the price to pay would be too high."
In the Telegraph, Ambrose Evans-Pritchard writes that fears of a euro break-up have reached the point where the European Central Bank has issued a legal analysis of what would happen if a country tried to leave monetary union. He notes that "Crucially, he [the author] argues that eurozone exit entails expulsion from the European Union as well." Evans-Pritchard adds, "This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion."
Former IMF analyst Desmond Lachman is quoted in CityAM warning: "Much like Argentina a decade ago, Greece is approaching the final stages of its currency arrangement. There is every prospect that within two to three years...Greece's European membership will end with a bang."
In the Times, Brownen Maddox argues that the Greek government's plan to rebalance its budget "remains incredible" and notes that if it is unable to avoid crisis alone then "The burden of Europe's most difficult decision this year would fall on Angela Merkel, the German Chancellor, who would have to decide whether to rescue Greece." She adds, "The threat of a Greek default may matter even more to the eurozone than it does to Greece itself. If Greece defaulted, other countries with high debt would all face dramatically higher borrowing costs." Maddox notes that while Merkel would "almost certainly" come to the rescue, Wolfgang Schäuble, the Finance Minister, has said that German taxpayers should not have to foot the bill.
An Open Europe poll of German voters in June 2009, in collaboration with the Institute for Free Enterprise in Berlin, found that 70% of Germans were against using public money to bail out other countries that have got into financial difficulties.
In the European Journal Mona O'Connor argues: "why has no-one in the UK made the link between the introduction of the euro and the UK/European Credit Crunch?" She argues that "European exposure to domestic subprime credits was far less than America but our crisis was made worse by the greater error of monetary union when interest rates were being pushed too low to suit 'one size fits all' by the European political elite."
Telegraph: Evans-Pritchard Telegraph: Hannan blog WSJ: Kraemer WSJ Times: Maddox Sueddeutsche City AM FT: Brussels blog The European Journal OE poll
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