Greek expulsion from the euro would demolish EMU’s contagion firewall

Sunday, January 4, 2015
By Paul Martin

Should EMU leaders choose to cut off liquidity support for the Greek banking system they might find that their contagion defences are a fiction

By Ambrose Evans-Pritchard
TelegraphUK
31 Dec 2014

We know from memoirs and a torrent of leaks that Europe’s creditor bloc came frighteningly close to ejecting Greece from the euro in early 2012, and would have done so with relish.

Former US Treasury Secretary Tim Geithner has described the mood at a G7 conclave in Canada in February of that year all too vividly. “The Europeans came into that meeting basically saying: ‘We’re going to teach the Greeks a lesson. They are really terrible. They lied to us, and we’re going to crush them,’” he said.

“I just made very clear right then: if you want to be tough on them, that’s fine, but you have to make sure that you’re not going to allow the crisis to spread beyond Greece.”

German chancellor Angela Merkel did later retreat but only once it was clear from stress in the bond markets that Italy and Spain would be swept away in the ensuing panic, setting off an EMU-wide systemic crisis.

The prevailing view in Berlin and even Brussels is that no such risk exists today: Europe has since created a ring of firewalls; debtor states have been knocked into shape by their EMU drill sergeants.

The Rest…HERE

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