Chart of the day: The Grexit decision tree

The Financial Times has gone through the very useful exercise of creating a decision tree on what a Greek exit from the euro zone entails. I think the Europeans are now actively preparing for a Grexit because to not do so would be folly. But that doesn’t mean that they want Greece to be forced out. Much of what we hear for public consumption is real. But much of it is also political posturing to improve negotiating positions. This decision tree can be helpful in figuring out what’s real and what’s just bluff

ELA Does not Stand for Exaggeration, Lies and Assumptions

ELA is the acronym for Emergency Lending Assistance. This is direct lending by the national central bank, with ECB authorization to local banks with more liberal collateral requirements. The national central bank is responsible/liable for the funds not the euro system.

Last week when the ECB announced that four Greek banks were no longer able to borrow from the ECB, this forced them to borrow from the Greek national central bank’s ELA facility. This in turn created confusion and all sorts of imaginary thinking

[Premium] Daily commentary: On Facebook’s IPO, JPMorgan’s losses, Spain’s bank run and Greece’s exit

As always, I have a lot of links on Monday. Three or four stories have dominated the news in each market for the past week. In the US, it is about either JPMorgan Chase’s escalating losses, Facebook’s IPO or the general aimlessness of the market. In Europe, the dual stories are Greece and Spain. In Greece, the talk is of an imminent exit from the eurozone, while in Spain the question revolves around Spanish bank insolvency. Other news outside of the G8 has been pushed to the side

[Premium] Pushback on the imminent Grexit meme

I still find it hard to believe a Greek exit from the euro zone is imminent. So it’s good to see someone push back on the concept that a Greek exit from the euro zone is imminent. John Dizard at the FT does just this in a piece out today entitled “Everybody chill – Grexit is not really imminent”

[Premium] Daily Commentary: On policy advocacy and forecasting in Greece’s exit from the euro zone

I like write about what will happen and what policy makers will do rather than about what should happen and what policy makers should do. But Yanis Varoufakis’s post on the Grexit below tells you that Greece’s leaving would be catastrophic, a Grexit is a definite SHOULD NOT. I have a hard time finessing this one because I believe Greece’s situation in the euro zone is untenable economically and politically but that breaking up the euro zone will crystallize worst case outcomes for which we are not prepared

The euro zone has become a political economy black hole

Without going into the detail of my member posts, here’s what I can say: it is clear Greece will eventually exit the euro zone. The question is the timing. But, the political about-face necessary to prevent contagion is a lot larger than politicians are now prepared to take

[Premium] On my disbelief over the Greek exit chatter

I just re-opened the thread on “How and why Greece will leave the euro zone” because there has been so much chatter about a Greek exit. I am still a bit in disbelief that Europe would allow the Greek economy to crumble so much thy would be forced to exit. You have to think contagion risk from a Greek exit is still pretty high. That tells me Europe is bluffing about cutting Greece off. But politicians sometimes get backed into a rhetorical position that takes on a life of its own. So bad things can definitely happen

Another chart of the day: Greek bank deposits collapse

The chart below via Reuters’ Scott Barber is what an economic depression looks like. It covers Greek bank deposits from 1998 to present

[Premium] Europe is on the brink of something very big

Euro zone bond markets have come completely unhinged this morning. Spanish 10-year yields have hit the highest level this year at 6.5%. While Italian 10-year yields broke above 6% for the first time since late January. Meanwhile, German yields have moved to a record low of 1.44%. We are now back to levels of stress we last saw during the Italian crisis in November and December. However, this time policy space has narrowed considerably. In short, Europe has reached the critical breaking point

[Premium] More on the political economy of the coming Grexit

In February I wrote about the political economy of a Greek default (and euro zone exit), predicting that a Grexit was all but inevitable. In the last few days, there has been an almost feverish debate about this issue, so I wanted to update you with my thinking given how the situation in Greece and the eurozone has deteriorated since February and how the Greek exit from the euro will occur

Will the Greek exit be voluntary or involuntary?

Ever more voices are talking about the possibility of Greece leaving the euro zone despite the fact that there is no formal mechanism for a euro are member country to exit the single currency. This talk, however, makes sense because Greece’s situation is untenable economically and politically. The Grexit is a question of when and how not if

Chart of the Day: Euro zone GDP by country

This chart was attached to a very good front page article in today’s Wall Street Journal by Marcus Walker on How a Radical Greek Rescue Plan Fell Short. The article gives a blow-by-blow account on how the Greek crisis has unfolded and a detailed view on where each of the Greek and European leaders stood on various issues involved in Greece’s debt restructuring. The chart itself demonstrates the enormous gulf between the size of the German economy and other economies in Europe, giving some sense of why the Germans (and the French) have come to dominate European policy discussions