Editorial
February 20, 2012
Leaders of the euro area’s wealthier nations are increasingly raising a provocative question: Might the common currency now be strong enough to end the bailout agony and let Greece go?
The short answer is no. In fact, the euro area is probably more vulnerable to a Greek disaster than ever.
Until recently, European officials dismissed the idea of Greece leaving the euro as unthinkable. They seemed to recognize that such a move would amount to mutually assured destruction. Aside from the horrendous legal complications, the exit of one country would raise concerns that further departures would tear apart the euro -- a fear that would become self-fulfilling as market turmoil overwhelmed governments’ finances.
Now, officials in Germany and other northern European nations are saying a disorderly Greek default and return to the drachma aren’t so unthinkable after all. Last week, German Finance Minister Wolfgang Schaeuble said the euro area was now better equipped to handle the potential repercussions than before. Luxembourg Finance Minister Luc Frieden also chimed in. Of course, this could all be a bluff, designed to pressure Greek leaders into accepting harsher austerity measures.
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| Net liabilities of Bank of Italy to central banks of other euro members, in billions of euros. Source: Bank of Italy |
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