Robert Jenkins, a member of the Bank of England's Financial Policy Committee, does a good job in setting out the potentially disastrous economic and financial consequences for Greece and the wider European Union if Greece is allowed to default via exiting the eurozone in this morning's FT (£).
That possibility was admitted for the first time by eurozone leaders at the Cannes summit last week. Obey or leave the club, was their message. But as Mr Jenkins explains, the consequences, not just for Greece but everyone else in the eurozone would be potentially catastrophic. Once Greece goes, the other PIGS would sit there like ducks in a row, waiting to be picked off one by one, or perhaps all in one go.
However, there are two problems with the implication of his analysis, which is that Greece cannot be allowed to leave and must therefore be restructured within the single currency. One is that the realpolitik of the eurozone is preventing the application of sensible policy to ease the plight of the periphery and allow the resumption of reasonable economic growth.
The short term consequences of a breakup may be extraordinarily traumatic, but the long term costs of staying together look pretty unappetising too. Far from promoting growth and political solidarity, which is what the single currency was supposed to do, the euro is infact achieving the opposite effect, by condemning the eurozone to long term recession and now extreme political infighting.
By suggesting that there will be no support for Italian bond markets until Italy reforms itself, the European Central Bank is playing god in a way which is almost certain to end badly. Whatever Silvio Berlusconi's faults, which are undoubtedly many, since when was it thought acceptable for the central bank to effectively decide on what the government in Italy should be?
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