Wall Street Journal
November 4, 2011
The extraordinary events of the past week in Europe have included the shattering of a taboo that could have profound consequences for the Continent: the public discussion by European leaders that Greece could exit the common currency.
The chances of Greece leaving the euro may have fallen on Thursday as the likelihood of a referendum receded. But the open airing of that possibility has broken the single most important rule governing the issue: If you're going to do it, don't advertise it beforehand.
Sending a message that exit is possible risks creating a crisis of confidence that eventually forces a government's hand, with what economists say are potentially disastrous consequences.
"The prospect of Greece exiting the euro area is seldom viewed with the proper degree of fear and trepidation," argues Willem Buiter, chief economist at Citigroup. He says the bottom line of an exit for Greece is financial collapse and an even deeper recession—or even a depression—with significant collateral damage to the rest of the euro zone.
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