STOCK MARKET WATCH -- Monday, 14 May 2012

[FarCenter]

5. The final death throes of the euro

It could happen voluntarily, but both the Greek people and Greek politicians are still clinging to the idea that they can put an end to austerity yet still stay in the euro. In order to try to achieve that, a new government may call the eurozone's bluff.

At that point, the other eurozone members would face an awkward choice. Doubtless there would be voices in favour of providing the money, willy nilly. That might well be the French position. But if the eurozone gives way on this, what chance would there be of painful austerity being continued, not just in Greece but also in Portugal, Spain, Italy and Ireland? The northern countries would face the prospect of pouring money into a bottomless pit.

Accordingly, it is likely, I think, that they would say: "It's your choice: we want you to stay in the euro (which isn't true yet has to be said) but you cannot do so on your own terms."

If the Greeks did not yield, then they would be out. For if they don't get the money, it isn't simply a matter of not being able to honour their debt obligations (i.e. defaulting); they would not be able to meet their obligations to pay wages and pensions. Moreover, if they could not get ECB funding for their banks, then their banking system would face implosion. At that stage, the only way out would be to move to a system where they can get funding from their own central bank – in other words, to come out of the euro.

http://www.telegraph.co.uk/finance/comment/rogerbootle/9263156/The-final-death-throes-of-the-euro.html