Treasury Today Country Profiles in association with Citi
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March 2012

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Will reality prevail?

We have written about the euro crisis in practical terms over the last few months and provided our readers with a checklist of action points that prudent treasurers will have reviewed. No one can ignore the endless stories regarding the euro crisis – some real and some not so real.

So, is there more that needs to be done?

The answer is probably not. Given all the other risks that have to be managed this is one that needs to be kept in perspective. It is the political and practical realities that need to be watched. Until these change, Greece will not leave the euro.

As this editorial is written, the pundits are swinging one way and then the other on the latest Greek bailout. The commentators advise us that it will save the euro one day but by the following morning it is being written off as merely ‘sticking plaster on a much more serious wound’.

The reality is that there is no political desire within or without Greece to encourage or force the country to leave the Eurozone.

The reality is that there is no political desire within or without Greece to encourage or force the country to leave the Eurozone. None of the other Eurozone countries want to be seen to be excluding Greece. They may want to impose harsh measures on the Greek government but that is not the same as excluding them from the club.

The reasons for this vary. Fear of contagion is the main motive. If Greece falls, which country will be next? There is also a strong reluctance, in Germany in particular, to be throwing any economic weight around. Matched unfortunately with a reluctance to accept that a country cannot run in surplus forever; one country’s surplus being another’s deficit.

Within Greece, the current political perception is that there is little to be gained from leaving the euro. Which politician would choose to leave a strong currency and see its new currency collapse with all the consequences that would bring? Far better to muddle through and seek deficit reductions, debt forgiveness and look like you are trying to sort out the economy.

There are also enormous logistical and practical difficulties, even if there was a desire within or without Greece to see the country give up the euro. These should not be underestimated, nor should the costs involved. The physical form of the currency would need to be sourced which is an enormous task and not something that could be done quietly. There would be complex and multiple legal and contractual issues to resolve. Bad money would force out good as predicted by Gresham’s law. The list goes on and on.

These practicalities are enough in themselves to deter or even prevent a country of being capable of leaving the euro. These barriers will not be surmounted unless there is a political will to get Greece to leave and that is missing right now. Treasurers will be watching to see if this changes but, in the meantime, will see all the news stories for what they are – just stories.