The big question — whether Greece will leave the eurozone or not — remains unanswerable. But I am now fairly certain it will default.
My understanding is that some eurozone officials are at least contemplating the possibility of a Greek default but without Grexit.
The link between default and exit is indirect; if a country defaults, its defaulting securities are no longer eligible as IOUs for the country’s banks to tender at ECB money auctions.
This sounds like somebody has a plan. But this is not my impression. I have never seen European finance officials so much at a loss.
I wonder whether one or more people on both sides of these discussions may simply be miscalculating. We may be on the verge of one of those sleepwalking moments in European history.
The Greeks and their creditors may simply continue to “kick the can down the road”.
Even those members of both sides’ negotiating teams who thought that this whole sorry episode must end in Grexit didn’t want to be the ones to pull the trigger – or at least not to be seen to be doing so.
Spain and Portugal, their worry has been that if Greece were seen to win further concessions then their own pursuit of austerity would become indefensible to their electorates.
Greece needs to become much more competitive. This is only possible if it leaves the euro and allows its new currency to depreciate sharply on the exchanges. To forgo this opportunity while nevertheless defaulting and becoming a pariah among fellow EU members would be to condemn the country to a prolonged near-death experience.
Ironically, currency devaluation has always played a central role in the IMF’s classic treatment for countries in difficulties.
Full text of Roger Bootle, Telegraph 19 April 2015