Let’s play devil’s advocate and say the northern European countries make good on their threats and finally say “the hell with it” and cut the cord to Greece. Is the Euro zone better positioned to withstand a Greek default than it was two years ago?
Yes, no doubt. Not a great deal better, in my view, but better, thanks to one man, Mario Draghi.
Draghi upped the ante on LTRO and put the banking system in a position to be able to fund itself over the medium-term, not day to day as was the case prior to the new program. We no longer need to worry about the major European banks being wiped off the map should Greece default.
The system would still be damaged as the Greek banking system would be wiped of the map and create tremendous strains around the globe at least short-term but we should avoid the domino-like effect seen in 2008 when the failure of Lehman took AIG with it and nearly took the rest of the major global banks with them.
Uncertainty should undermine the euro and give the still large short-base in EUR/USD confidence, reducing the instinct to buy on dips after having sat through some serious pain in recent weeks on the rally above 1.32
