Grexit is not Manageable

Greek exit manageable but not preferable: ECB’s Asmussen | Reuters.

Asmussen is jawboning. A Grexit is not manageable, and he knows it. The system is much too interconnected and complicated, and the fall of Greece will create a panic that will make the Lehman moment seem quaint in retrospect.

The reason for this jawboning is to get Greece to agree to more cuts. Then, the ECB will continue to allow Greece to fund itself through backdoor bailouts. Just a few days ago, Greece sold T-Bills to Greek banks who then pledged the bills to Bank of Greece for desperately needed euros. The Greek government took the proceeds of the bill sale and paid back a €3.2bn loan to the ECB. (Really, I am not making this up)

I discuss the simple math behind keeping Greece in the Eurozone here:

Basically, it is very cheap to keep Greece sputtering along within the currency area, so that is the action that the officials will take.


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