My own take on the same topic was published here.
Another issue, also raised repeatedly on this blog, is discussed in Joachim Fels' (Morgan Stanley) piece on FT Alphaville (here). Fels makes a claim that countries with a high degree of inflation aversion (Germany) might have an incentive to quit. Fels suggests three warning points for the crisis to develop:
- First, any signs of moral hazard emerging in the fiscal policies in the euro area
- Second, ECB failure to raise interest rates on time to cut inflationary pressures, and
- Third, the political pressure rising against the Euro in Germany.
Greece asking for the pledged money won't do. If you think in terms of game theory, once that happens in earnest (and it might be today or over the weekend), Germany will face the following two options:
- Grant request for assistance in full and thus pre-commit itself to the common currency at the sunken cost of an exit of ca 10-12 billion euro that it will commit to Greek deficits financing;
- Exit now, saving the aforementioned money, but destroying its political capital within the EU.