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Peston, BBC: Could the euro survive a Greek exit?

Could the euro survive a Greek exit?

The point is that the eurozone crisis is a sovereign debt crisis and an inextricably connected banking crisis
Any business of any nationality will find it extremely difficult to leave its money in euros in a bank in a country perceived to be at risk of following Greece out the door.

Citizens too, if they are able to do so, have a huge economic incentive right now to take their money out of Greek banks, and either hold it in cash or transfer it to a perceived safe haven, such as Germany.

A Greek departure from the euro, which accelerated withdrawal of cash from banks in other vulnerable economies, would surely create the imperative for yet more emergency ECB lending to banks.

And since the European Central Bank and the national central banks insist on lending only in return for collateral, there is a danger that banks would shortly run out of collateral of sufficient quality.

Which means the ECB would face the uncomfortable choice of turning off the life support, and see quite a few banks falling over, or lending on the basis of inadequate security - and thus taking significant credit risks with these loans.

Robert Peston, BBC Business editor, 14 May 2012

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