ECB slowly preparing markets for a Greek exit

Author: Adam Button | Category: Central Banks

MNI has a great story detailing recent ECB comments about Greece leaving the eurozone.

It underlines a subtle shift in rhetoric — instead of denying the possibility of a Greek exit, officials are  attempting to sooth fears.

What the ECB had dismissed as “an absurd scenario” has suddenly become a very real possibility for Eurozone central bankers, who now say the consequences would be “manageable,” not catastrophic.

The ECB should be lauded for this approach. We all know that from a purely economic perspective, the loss of Greece would be next-to-nothing. The greater risk is from contagion — bank and bond market runs elsewhere — which is primarily an emotional response.

If the situation is lost, the aim for officials should be a slow, managed Greek exit with frequent assurances. The trick will be convincing the market that Greece is different from the rest of the periphery.

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