As recently as the beginning of this summer, financial analysts were still debating whether or not Greece would default. The line was drawn and the battle raged as politicians and financial analysts took sides. Some said a default was imminent whilst some claimed Greece would never default.
As the deadline drew nearer, it was all but accepted that Greece would indeed default on its debt. This was bad enough since so much had been loaned to Greece but now there are those calling for Greece to exit the eurozone so as not to pull it down any further.
Unfortunately, according to Robert Jenkins, a member of the BoE, there really is no choice but for Greece to default whilst still a member of the eurozone. To pull out and default would cause such a financial uproar that it would trigger further debt crisis not only in Europe but around the globe as well.
Jenkins outlines the scenario of Greece exiting the euro and it isn’t a pretty picture. In his scenario there are 25 steps leading up to what he says would end in a complete end to economic activity in the EU. Just prior to that, bank lending would cease which is why all other financial activity would then cease as well.
In other words, to default within the EU is manageable according to Jenkins. Defaulting within a group of a like mind is something that can be dealt with. However, if Greece exits the EU, their default will be of a different magnitude and not easily remedied.
He states that Germany understands the dilemma but their constituents don’t quite grasp it. The focus should be to stay on the Greeks from within the euro rather than trying to tackle them once they’ve become an outsider. It is easier to work towards recovery from within. Once they are out of the EU there is no controlling what may happen.
