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Schaeuble Dares Greece Exit as Contingency Plans Start
By Simon Kennedy and Liam Vaughan - May 11, 2012 10:03 AM ET
As German Finance Minister Wolfgang Schaeuble dares Greece to quit the euro, investors and economists are mapping out what he and fellow policy makers need to do to save the single currency if his bluff is called.
Emergency lending and bond buying from the European Central Bank coupled with recapitalizations and deposit insurance for lenders and broader powers for the region’s rescue fund are among the prescriptions for insulating Spain and other cash- strained nations from what Citigroup Inc. calls a “Grexit.”
German Finance Minister Wolfgang Schaeuble suggested the euro area could handle Greece dropping out, raising pressure on Greek political leaders struggling to form a government amid a rise in anti-bailout sentiment. Photographer: Jock Fistick/Bloomberg
Pressure for contingency plans are mounting as Greece’s electoral quagmire forces euro-area officials to publicly revive the once forbidden topic of whether a nation can leave the single currency. Schaeuble told today’s Rheinische Postnewspaper that the euro area could handle a Greek departure as “the risks of contagion for other countries of the euro zone have been reduced.”
“Any exit would need to be done as part of a package to reduce disruptions,” said Mohamed El-Erian, chief executive officer atNewport Beach, California-based Pacific Investment Management Co., which manages the world’s largest bond fund. “At this stage, it’s very easy to find things wrong with any approach that is proposed.”
Lehman Moment
The risk is if Greece leaves and the save-the-euro response flops the world economy could face a sovereign-version of Lehman Brothers Holdings Inc.’s collapse. That makes Schaeuble’s confidence sound all too similar to former U.S. Treasury Secretary Henry M. Paulson’s optimism that the U.S. financial system could withstand the 2008 loss of Lehman Brothers, only to witness the deepest global recession since World War II and a 40 percent slide in the Standard & Poor’s 500 Index in six months.
“If there’s no contagion who cares about Greece, but I wouldn’t be so sure and if I were Germany I’d not be willing to risk it either,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in a May 9 interview. “If a Greek exit had unforeseen consequences for contagion across countries it would have been a huge mistake.”
Decades in the making and 13 years in existence, the euro- area in its present 17-nation form is in jeopardy after Greece’s voters backed parties allergic to the terms of its bailouts, depriving it of a working government and risking access to the aid it needs to pay its bills and meet debt maturities. (read more on Bloomberg)
Whelp, since we've all reverted to third grade status I'm just gonna throw in my two cents from the peanut gallery over here. Hey Greece! We triple dog dare you to get the fuck outta the euro already, and OUR LIVES. You're like a bad penny dude. Keep showing up. To rain on OUR parade. Debbie downer = Greece. So go ahead. MAKE OUR DAY. And go away. Thank you.
PS. Don't call it a Lehman moment, we've been here for years...gotta do SOMETHING about this problem other than THROWING money at it and hoping for the best...just saying. World financial collapse? We laugh in the face of that possibility. And all go back to therapy to get over the last near financial collapse of 2008. Hey Greece! Wanna pick up the tab? YOU SHOULD. 4 years of therapy down the drain...Thanks A LOT.
PPS. I'm telling. Momma said knock you out.
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