There's talk of an exit – but default would have catastrophic consequences

by Heather Stewart

Observer
February 12, 2012

Greece's finance minister, Evangelos Venizelos, believes his country's dilemma about whether to pay the price and stay in the euro is a moment of destiny; but a Greek exit – "Grexit", as it is being called – would send shockwaves throughout the world economy.

In theory, Greece could default on its debts and remain within the single currency: the bailout now on the table already involves a partial default to private sector creditors such as banks. But resentment against Greece has been growing in Brussels, where it is seen as tarnishing the euro project. If politicians in Athens cannot reach agreement on the latest cutbacks – or if they sign up and then fail to deliver – their eurozone partners may take that as a decision to leave the club.

As the talks rolled on last week, a growing number of voices in the single currency's more stable "core" countries suggested they could manage without Greece. Dutch prime minister Mark Rutte said: "We are currently so strong in the rest of the eurozone… that we can handle an exit of Greece."

Some investors, too, argue that, because a default has been a possibility for many months, financial markets would take it in their stride.

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