... the markets are convinced that the politicians are working out a managed default that would allow Greece to devalue but stay within the euro, a new "soft" euro band; for those with long memories, not unlike the old exchange rate mechanism. This would allow Greece to devalue by up to 25 per cent and continue using the euro note, but a Greek one stamped with its insignia, thus keeping pride intact too.Sensible idea. But far too sensible for the muddle-headed bureaucrats in Brussels and Frankfurt?
It's impossible to know whether such a plan is being hatched, but the markets are usually pretty good at smelling these things out; if it happens, August is the most likely month. No one is going to admit to a Plan B as it would have to be conducted in secrecy with the other eurozone central banks over a weekend, and announced first thing on a Monday to avoid a flight of capital out of the country. The Greek banks would have to be recapitalised, a floor would have to be put under corporate and household debt. Such an arrangement has the benefit of allowing Portugal and Spain to opt out too into a more flexible band, should they need to. And hey presto, you then have a northern "hard" euro area of Germany, Austria, Finland, Netherlands – maybe France and Italy – and trading can start competitively.
19 February 2012
The snake in the tunnel
Ms Pagano in The Independent thinks that there may be a plan B in the offing: