ECB Update: Council Members Cast Off Taboo On Greek Exit Talk
FRANKFURT (MNI) – In a rapid shift of their public rhetoric, more
European Central Banker officials are openly discussing the possibility
of a Greek-exit from the Eurozone after Executive Board member Joerg
Asmussen broke the taboo for the first time last week.
Recent comments suggest that ECB policy-makers not only consider an
exit by Greece increasingly likely, but they are trying to downplay its
potentially adverse psychological impact after having warned repeatedly
and for many months of catastrophic consequences if the Greeks were to
abandon the single currency.
Fears of a Greek EMU exit sparked a fresh sell-off on Monday as
European share sank about 2% to their lowest levels in more than four
months and the euro fell to below $1.29 for the first time since
January. This might be just a foretaste of what is to come should an
exit by Greece indeed become reality.
The nervousness appears to have hit central bankers, who had long
described talk of a Greek exit as absurd. “I guess an amicable divorce –
if that was ever needed – would be possible, but I would still regret
it,” ECB Governing Council member Luc Coene told the Financial Times in
an interview released Sunday.
Fellow Council member Patrick Honohan said that a Greek exit from
the euro could be “technically” managed. While it would not be an
attractive option, Honohan said, “it is not necessarily fatal.”
On Monday, Christian Noyer said that even a “catastrophic scenario”
for Greece should not pose a problem for French banking groups or
insurance companies. He also appeared to argue that there would be
limited contagion risk, stressing that Greece was a “very particular
Jens Weidmann told Germany’s Sueddeutsche over the weekend that
there will be no further aid for Greece unless it sticks to the
conditions agreed under its two bailout programs. Should Greece leave
the currency union, “the consequences would be more serious for Greece
than for the rest of the Eurozone,” he said.
So 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 most explicit comments in this respect came from Asmussen last
week. In one and the same interview, Asmussen allowed for the
possibility of a Greek exit while asserting nonetheless that the worst
of the crisis was over.
There is little doubt that Europe is much better prepared for a
possible Greek exit than a few short months ago and that the
consequences might be less severe than they would have been last year
when former President ECB Jean-Claude Trichet warned that if Greece left
it could spark a large-scale unraveling of the currency union.
Europe has boosted the firepower of its rescue fund; private
creditor exposure to Greece has been reduced significantly, and markets
have largely priced in an exit. Meanwhile, Portugal and Ireland show
commitment to their programs while Italy and Spain have adjustment
policies under way, lending credibility to the argument that Greece is
“a unique case.”
Still, nobody can predict with any certainty how markets would
react should Greece leave the Eurozone. Even as ECB policy-makers
continue to insist that a Greek exit should ideally be avoided, their
language has clearly shifted.
As risks of an exit become ever greater, central bankers may well
be trying to assure markets that Europe can deal with it in order to
prevent previous warnings of a looming catastrophe from becoming
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