Grexit: Remaining In The Eurozone Is No Longer ‘The Base Case’ For Greece

by Michael Snyder, The Economic Collapse Blog According to the Wall Street Journal, Greece staying in the eurozone is no longer “the base case” for European officials, and one even told the Journal that “literally nothing has been achieved” in negotiations with the new Greek government since the Greek election almost three months ago.  In other words, you can take all of that stuff you heard about how the Greek crisis was fixed and throw it out the window.  Over the next few months, a big chunk of Greek government bonds held by the IMF and the European Central Bank will mature.  Unless negotiations produce a load of new cash for Greece, there will be a default, and right now there is very little optimism that we will see an agreement any time soon.  In fact, as I wrote about the other day, behind the scenes banks all over Europe are quietly preparing for a Grexit.  European news sources are reporting that the Greek banking system is on the verge of collapse, and over the past couple of weeks Greek bond yields have shot through the roof.  Most of the things that we would expect to see in the lead up to a Greek exit from the eurozone are happening, and now we will wait and see if the Greeks actually have the guts to pull the trigger when push comes to shove.

At this point, many top European officials are quietly admitting that it is more likely than not that Greece will leave the euro by the end of this year.  The following is an excerpt from the Wall Street Journal article that I mentioned above

It’s still possible that Greece can remain in the eurozone—though that is no longer the base case for many policy makers. At the very least, most fear the situation is going to get much, worse before it gets any better. No one now expects a deal to unlock Greek bailout funding at this week’s meeting of eurozone finance ministers in Riga—originally set as the final deadline for a deal. The new final, final deadline is now said to be a summit on May 11.

But among European politicians and officials gathered in Washington DC last week for the International Monetary Fund’s Spring Meetings, there was little optimism that a deal will be agreed by then.

The two sides are no closer to an agreement than when the Greek government took office almost three months ago. “Nothing, literally nothing has been achieved,” says an official.

Literally nothing has been achieved?

That is not what the mainstream media has been telling us over the past few months.

They kept telling us that agreements were in place and that everything had been fixed.

I guess not.

The Germans believe that the risks of a “Grexit” have already been priced in by the financial markets and that a Greek exit from the euro can be “managed” without any serious risk of contagion.

So they are playing hardball with the Greeks.

On the other hand, the Greeks believe that the risk of contagion will eventually force the Germans to back down

Greece’s Finance Minister Yanis Varoufakis said in an interview broadcast on Sunday that if Greece were to leave the euro zone, there would be an inevitable contagion effect.

“Anyone who toys with the idea of cutting off bits of the euro zone hoping the rest will survive is playing with fire,” he told La Sexta, a Spanish TV channel, in an interview recorded 10 days ago.

“Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of euro zone to carry on.”

In this case, I believe that the Greeks are right about what a Grexit would mean for the rest of Europe and the Germans are wrong.

Once one country leaves the euro, that tells the entire world that membership in the euro is only temporary.  Immediately everyone would be looking for the “next Greece”, and there are lots of candidates – Italy, Spain, Portugal, etc.

There is a very good chance that a Grexit would set off a full-blown European financial panic.  And once a financial panic starts, it is very hard to stop.  The danger that a Grexit poses is so obvious that even the Obama administration can see it

A Greek exit from the euro zone would carry significant risks for the global economy and no one should be under the impression that financial markets have fully priced in such an event, the chairman of the White House Council of Economic Advisers said.

The comments by Jason Furman in an interview with Reuters in Berlin are among the strongest by a senior U.S. official and are at odds with those of German Finance Minister Wolfgang Schaeuble, who told an audience in New York last week that contagion risks from a so-called “Grexit” were limited.

“A Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right,” Furman said.

Meanwhile things continue to get even worse inside Greece.  If you have any money in Greek banks, you need to move it immediately.  The following comes from Zero Hedge

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