With the latest news that is coming in around Greece, it now seems that Greece’s exit from the European Monetary Union (EMU) is imminent.
CNBC, quoting Reuters, reports Euro Zone Officials Agree to Prepare for Greek Exit Scenario.
“Each euro zone country will have to prepare a contingency plan for the eventuality of Greece leaving the single currency, three euro zone sources said on Wednesday, citing an agreement reached by officials. The consensus was reached on Monday afternoon during an hour-long teleconference of the Eurogroup Working Group (EWG). As well as confirmation from three euro zone officials, Reuters has seen a memo drawn up by one member state detailing some of the elements that euro zone countries should consider.”
This is in line with my argument a few days back that the latest runs on banks in Greece might very well be the beginning of the end.
And, what are the bond markets saying? It almost seems as if the bond markets are ready for a Greece exit and might even be hoping that it happens! Spanish and Italian yields have been going up the past few days but are still much lower than the highs made a few months back. The yields are going to rise, of course, but the fact that they have not even crossed the highs made a few months back shows that bond markets are not too worried.
It seems that Nouriel Roubini, who predicted the 2008 crisis right down to some uncanny details, seems to be getting this one right, too. Roubini has been predicting a Greece exit and an eventual meltdown of the EMU for a long time now. In fact, his recommendation for a long time has been that Greece Should Default and Quit the Euro.
"The recent debt exchange deal Europe offered Greece was a rip-off. If you take into account the large sweeteners the plan gave to creditors, the true debt relief is close to zero. A return to a national currency and a sharp depreciation would quickly restore growth and competitiveness, as it did in Argentina and many other emerging markets that abandoned their currency pegs," he said.
As recent as a few months back Roubini’s view was that Situation in Europe is a ‘Slow Motion Train Wreck’.
With the Greece re-election dates just a few weeks away, the economic and political dynamics surrounding the Eurozone are evolving at a very fast pace.
Greece has dug itself into a hole from which it is nearly impossible to emerge without a severe battering. With debt at 160% of GDP, an economy in severe recession and a quarter of the population unemployed, an exit from the EMU is starting to look more and more like the best option.