Sunday, January 4, 2015

4/1/2015: Greek Crisis 4.0: Politics 1 : Reality 0

With hundreds of billions stuffed into various alphabet soup funds and programmes, the EU now thinks that Greece has been isolated, walled-in, that contagion from the volatile South to the sleepy North is no more ( Backing these beliefs, the EU and core European states have gone on the offensive defensive when it comes to Greek latest iteration of the political mess.

Yet, for all the 'measures' developed - from European Banking Union, to 'Genuine' Monetary Union, to EFSF, EFSM, ESM and ECB's OMT, LTROs, TLTROs, ABS, etc etc - the EU still lacks any clarity on what can be done to either facilitate or force exit of a member state from the EMU.

The state of the art analysis of the dilemma still remains December 2009 ECB Working Paper on the subject, available here: which is, frankly put, a fine mess. Key conclusion, however, is that "a Member State’s exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable; and that, while perhaps feasible through indirect means, a Member State’s expulsion from the EU or EMU, would be legally next to impossible."

So much for all the reforms, then - lack of clarity on member states' ability to exit the euro, whilst lots of clarity on measures compelling and incentivising a member state to submit to the euro area demand (e.g. bail-ins, access to Central Bank funding etc) - all the evidence indicates that the entire objective of 2009-2014 reforms of the common currency space has been singular: an attempt to simply lock-in member states' into the euro system even further. Disregarding any monetary or fiscal or financial or economic or social realities on the ground.

Which brings us back to the starting point: at 175% debt/GDP ratio, Greece cannot remain within the euro area (for domestic and international financial, economic and social reasons). Yet, it cannot exit the euro area (for domestic and international political reasons). Politics 1 : Reality 0, again.

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