What they say

Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School


Greece – the illness and the cure for the Eurozone Crisis.

A look at the map of Europe in 1850, 1910, 1938, 1960 today. Europe in quite short time periods has gone though enormous change. In the past 40 years politicians and technocrats (many un-elected) have attempted to manipulate the future EU order through political ideals and economic levers. Now these politicians are faced with a consequent crisis that will surely once again lead to major constitutional change – politically and economically. Such is the outcome from an attempt to force a marriage that could not work – in this case currency union..

As to today’s solutions, it’s a case of damned if you do and damned if you don’t re-structure the Eurozone. Leave it alone and the illness festers and likely gets worse. Attempt a cure and the cost may be un-affordable or fatal.

The causes of the crisis are far clearer than the likely outcomes and herein sit some answers. Ireland, Portugal and Greece have had to be bailed out but only Greece has an insoluble debt crisis – largely because its economy has been (and still is fiscally) so badly run. No one believes that Greece is a worthy member of the Eurozone.

So long as Greece is in the Eurozone the bond markets will worry about contagion. Take Greece (and Cyprus – heavily locked into Greek debt) out of the Eurozone and the fear over Italy, France, Belgium and Spain etc will fade. Sarkozy will most likely go in 2012 and Monti will surely stabilise Italy. The Eurozone would then gain stability and credibility and time will be bought for economic recovery. This time will also permit behind the scenes re-calibration of Eurozone standards, controls and monitoring.

So my solution, even at the huge cost to Greece (and foreign debt holders that it will mean), is that Greece should be expelled from the Eurozone. Yes, this means a mechanism will be created that could be adopted by the others PIGS and even Italy but a political mechanism to prevent a rush to the exits should be included.

Excluding just Greece will be enough to restore bond confidence and even keep the CRA’s at bay. I would hope that in 4 weeks we can see an announcement of an exit for Greece. Of course they need a year to work this through but a 50 page plan should do it. This is an emergency in case no one has noticed. After all, Maastricht is how many pages and how useful?

Greece is hardly in a position now for entitlement to the Eurozone bailout. It would be best to provide a slow drip ECB bail out as a farewell gift on the way out of the Eurozone door.

Currency markets see the Eurozone as Germany which is why the Euro remains so strong. Bond markets see the Eurozone as the PIGS. These views will converge towards the PIGS as Germany struggles to be able to financially or politically support the rest of the Eurozone – unless a radical solution is found.

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