...a Greek exit would destroy the euro area....Of course hes an engineer. And a high stakes poker player.
From Real Time Economics:
The prospect of Greece leaving the euro is the only thing anyone is talking about in the markets at the moment. It even has its own nickname: Grexit.
Nothing is certain here; Greece may or may not leave, and there’s a huge range of potential policy responses. So, making allowances for some guesswork, here’s a rundown of the latest on some economists’ and analysts’ views on what could happen next.
CAPITAL ECONOMICS: “Leaving the euro zone could indeed be the only way for these countries to avoid a sustained and damaging period of deflation [and] an exit and devaluation would result in a significant and lasting boost to a departing country’s competitiveness, potentially kick-starting an economic recovery.”
The repercussions if Italy and Spain left would be immense, causing another deep recession. But for Greece, and possibly for the rest of the currency bloc, the advantage of regaining full control of monetary and fiscal policy is likely to outweigh the costs. “After a partial breakup, euro-zone policy makers may feel less need to set an example for weaker countries that have left, perhaps prompting looser monetary and fiscal policy. It may eventually result in all the existing euro-zone economies staging stronger and more balanced growth than if the euro zone remained intact.”
DEUTSCHE BANK: Amid all the concern about Greece leaving the euro altogether, Deutsche Bank suggests another path: introducing a parallel currency, which it nicknames the “Geuro,” to run alongside the remaining common currency. Leaving the euro altogether would cause economic, political and social chaos, the bank says, whereas a parallel currency would give the authorities “the power to stabilize the exchange rate of the Geuro…so as to keep the door open to a future return.”
Rather than a clear-cut and fully voluntary process, Deutsche Bank thinks that a Greek exit would emerge as the unwanted conclusion of a series of micro-decisions on the austerity package, bank recapitalization and the role of the European Central Bank.
In the long run, Greece could be better off out of the euro area, but the change to another currency regime would be extremely painful for the country in the nearer term, with a contraction in the economy and in disposable income worse than was seen in Russia and Argentina. Containing the damage from a euro exit would require swift action and a capacity for policy coordination that has seldom been seen since the beginning of the crisis....MORE