Friday, August 31, 2012
Why A Grexit Is Not Going To Happen
August 31, 2012
The recent Grexit rhetoric is not restricted to German officials, but to all European politicians across the board. My guess is that a lot of it has to do more with internal consumption politics in many European countries than with reality.
To try to make you understand why a Grexit is next to impossible, let's think about what will happen if Greece is actually kicked out of the European Monetary Union (EMU).
Aside from the legal issues, if Greece is indeed kicked out of the euro, that means that the deposits in euros which Greek citizens have in Greek banks will have no value. Actually, they will have some value, but not the current value of the euro.
This also means that if another country were to be kicked out of the euro, then the deposits of that country's citizens will also be worth something other than the euro's current value. In both cases, the value of the deposits will be worth a whole lot less.
As you understand, if Greece were to indeed be kicked out of the EMU, then that would set a precedent and that would mean that other countries, under certain circumstances, would also be able to be expelled. So if Greece gets kicked out, my hunch is that we would see a bank run of historic proportions all across Europe.
Which means that the euro would collapse, because depositors and investors would be running scared, speculating who will be next, probably buying dollars in the short term. In any case, I foresee a massive exodus from the euro across the board, including investors and depositors in Germany.