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Economist: “Tempted Angela?” – Merkel Contemplates On How to Break Up the Euro

 Is German Chancellor Angela Merkel trying to save the euro? Despite German claiming so, The Economist believes rather the opposite. That Merkel is trying to break up the euro. Angela Merkel is been featured contemplating on the euro future – next to her a bottle of whiskey and a cup of  -what it seems to me- a Greek coffee.

A controlled break-up of the euro would be hugely risky and expensive. So is waiting for a solution to turn up

 

 “FOR all you know, Angela Merkel is even now contemplating how to break up the euro. Surely Germany’s long-suffering chancellor must be tempted, given the endless euro-bickering over rescues that later turn out to be inadequate. How she must tire of fighting her country’s corner, only to be branded weak by critics at home. How she must resent sacrificing German wealth, only to be portrayed as a Nazi in some of the very countries she is trying to rescue.”

Practical Merkel for practical solutions: Save or Break and damage calculations

Grexit, pursued by a bear

Begin with Greece. There is a common fallacy, not least in Germany, that dropping the Greeks would be a fairly costless way to teach a useful lesson. In fact the European Central Bank (ECB) owns Greek bonds with a face value of €40 billion ($50 billion), which would be converted into devalued drachma and which Greece might not service.

A further €130 billion or so of loans that Greece has received in the bail-out would have to be written down, or written off. The €100 billion of the temporary debts Greece has stacked up in the ECB’s payments system would crystallise into a loss. Add in a one-off grant of say €50 billion to tide Greece over—call it conscience-salving “solidarity”—and the bill might come to €320 billion. Estimating the price of a “Grexit” is guesswork, but Germany’s share might reach €110 billion of this, about 4% of the country’s GDP.

……

At first sight that is a bargain, because it would save German taxpayers from an open-ended commitment to Greece. And yet proof of the euro’s reversibility will throw markets into a panic. Ireland, Portugal, Cyprus and Spain also all owe investors abroad a net sum of 80-100% of GDP (the gross debt is much larger).

….

A bolder Plan B would amputate well above the site of infection, cutting off Spain, Ireland, Portugal and Cyprus too. Italy, which has net foreign debt of just 21% of GDP, would probably escape the chop: even with its heavy debts and chronic lack of competitiveness, Mrs Merkel would reckon that the euro zone could not function politically without it. The cost of a bolder Plan B would be high.

Read Full article : The ECONOMIST

PS I would put next to Merkel a bottle of Ouzo and a piece of chorizo…

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6 comments

  1. Don’t forget a little “bacalhau”…

  2. hey, thats an IRISH coffee

  3. I would put next to Merkel a bottle of Ouzo and a piece of chorizo…

    And a loaded handgun?

  4. I find it remarkable, that mainly “specialists” from countries, who never entered the Euro-Zone, have the best recipies how to save this currency.

    The normal Greece citizen has to take responsibility – who else elected for those criminals, who waisted all the huge amounts of money?

    Why are the rich inhabitants not prevented from withdrawing their millions or rather billions from their own country? Why are they not drawn to supply their riches to their own country? Why should other countries bear this risk?

  5. a letter exists written in the middle of our crisis in ireland from the ECB demanding that we would take a bailout or else and of course the irish taxpayers end up with an enormous debt that could have been avoided if they adopt the same bank recapitalization as will happen in spain
    we should be following the greeks into default as soon as possible[that is if we are allowed] the euro is a FAILED experiment!!7

  6. The letter you are referring to would not by any chance be the letter written by Trichet to the then Irish minister for Finance Lenihan? The same letter both the Rish Government and the ECB refuse to release, even under the freedom of information act because

    access to the record could reasonably be expected to have a serious adverse affect on the financial interests of the State or on the ability of the Government to manage the national economy

    and because

    Having reviewed your request, I consider that the records you have requested are covered by Section 31 of the Freedom of Information Act 1997 (extract copied ,below, *for ease of reference)* and are, therefore, exempt from disclosure under the Act as they would undermine the protection of the financial, monetary and economic policy of Ireland as a member State of the European Union

    When we also know that the then minister for finance Lenihan stated that “Ireland was “bounced” into the bailout”, one cannot but wonder what horrors this letter reveals about those who are ultimately responsible for the mess Europe finds itself in. Of course, without knowing the contents of that letter, everything remains guess work, but I think it would be a pretty good guess to say that the letter warns of an EU wide meltdown of the financial sector if certain things became public knowledge….