The Financial Times has gone through the very useful exercise of creating a decision tree on what a Greek exit from the euro zone entails. I think the Europeans are now actively preparing for a Grexit because to not do so would be folly. But that doesn’t mean that they want Greece to be forced out. Much of what we hear for public consumption is real. But much of it is also political posturing to improve negotiating positions. This decision tree can be helpful in figuring out what’s real and what’s just bluff.
Source: Consequences of a Greek eurozone exit, Financial Times
This post originally appeared at Credit Writedowns and is posted with permission.
7 Responses to “Chart of the Day: The Grexit Decision Tree”
next time make sure the photos work
I agree w/ "next time make sure the photos work"
Thanks, charts are fixed. For full interactive chart, see the FT: http://www.ft.com/intl/cms/s/2/0a35504a-0615-11e1…
I am starting to tend more and more towards Roubini's view now… pasting below a story I did yesterday…
Greece exit: imminent now?
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 that: 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.
So 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. Of course the yields are going to rise 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 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 EMU is starting to look more and more like the best option.
One-way expression is dangerous thought. JPMorgan’s 5b blunder is one example-too deep to pull out when the market goes the other way. I say, noone knows the future. I say the economists role is not to report on the train wreck and the reasons why but to offer reasoned alternatives that avoid the wreck. For those who say the wreck has already occured I say ‘NO’. Seems to me every morning is a new day, a new opportunity, a clean slate. So, offer something new that solves the problem. The Nobel economist among you propose solutions. Greece is small compared with the others in the queue so let your imagination suggest what works & holds the Union together. At this point the cost, relatively, is small to do so. To be a reporter overlooking the train wreck is to do nothing. May I offer this to chew? What happened in ancient times when debt was erased every-so-often? A clean slate w/o keeping score. Isn’t that what was offered those ‘too big to fail’?
I dare say that the nobel economists, and many other economists, have been offering solutions for the past two years. The problem is that the elected leadership has failed to listen to them at every turn. The issuing of Eurobonds, the conversion of the ECB into a lender of last resort, a more generous and larger ("bazooka") rescue of Greece earlier in the game, a move to full fiscal union and sovereignty transfer: all these have been proposed at one point or another, or in conjunction, by many of the leading economists. How many have been implemented?
I would argue that the economists have given up offering solutions which are ignored and vilified; and justifiably so. While Athens burns, what does the EU leadership do? Have dinner and agree to agree to a possible agreement in June. Lamentable.
grt chart and i wonder when euro ecomomic will recover!!!!