Countries in the Eurozone have
the democratic right to leave, even if it is not in the larger interest of
Europe. A Greek exit from the Eurozone
is therefore “possible”. This was recently stated by Luc Coene, European
Central Bank’s (ECB) governing council member. On the other hand, Mario Draghi,
president of the ECB has refused to comment on the possibility of Greece
leaving the euro. The economic repercussions, he believes, would be far worse
than anyone can imagine. The bank has already spent approximately $51bn in
purchasing its bonds to support the country.
Earlier this year, the central
bank had announced that it had no specific plan or set of plans in case if
Greece decides to exit the Eurozone. The fallout in that case would be so
unpredictable that it is not possible to plan ahead; rather the ECB would deal
with the situation on ad-hoc basis.
Coene, the central bank
governor of Belgium has expressed frustration over Athens’s inconclusive
elections as euro fell to three month lowest against dollar on Thursday (10th
May). The ECB has demanded economic reforms from Greece in return for bailout
but the current indecisive result creates more problems. President Karolos
Papoulias is holding meetings with all other party heads to form a successful unity
government.
Mr Coene believes that in case of
decrease or absence of international financial support, ECB would be forced to end
the emergency liquidity and therefore Greece’s banks might become bankrupt. Some
economists have argued that ECB would continue to support Greek banks even if
there wasn’t any international support. On the contrary, ECB officials have stated
that the ECB liquidity funding would automatically stop if a Greek bank were to
go insolvent.
He suggested that the ECB sponsored
“firewalls” will be able to sustain any short term damages arising out of the “divorce”.
Patrick Honohan, another ECB
governing council member believes that a Greek exit can be “managed” but it
would be extremely damaging for the reputation of ECB.
Almost all the senior ECB
officials have, at one time or another, publicly expressed that they are in
favour of Greece keeping itself a part of the union. In the long run, this will
be beneficial for both, Greece and Europe. Mr Coene believes that whether or
not Greece will remain or exit the euro was a political question which needs to
be answered by politicians, not bankers. He is quoted as saying, “Divorce is
never smooth …… an amicable divorce -- if that was ever needed -- would be
possible but I would still regret it."
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Your comments and feedback are always appreciated.
Sarfaraz A.K.
