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8th August 2012

"From the current perspective, [a Greek exit] is a manageable process," Mr. Juncker said in a transcript of an interview with German Television station WDR. "However, that doesn't mean it's a desirable path."

The Prime Minister of Luxembourg and President of the Eurogroup added that the 17-nation single currency union is key to Europe's political power and that without it the EU would lose political significance. "Without this common currency, politically we would have absolutely no meaning," he said.

The comments comes a couple of weeks after the German Economy Minister and leader of the pro-business Free Democratic Party (FDP), Philipp Rösler, told the German public broadcaster ARD, "If Greece no longer meets its requirements there can be no further payments."

"For me, a Greek exit has long since lost its horrors."

Karen Maley of the Business Spectator says Juncker's comments are significant because he has previously been much more strenuous in his defence of Athens, emphasising that a Greek exit was not a "working hypothesis", and criticising those who raised the prospect.

"It's now glaringly obvious that Athens has fallen badly behind in reaching the targets it was set in its latest €130 bailout plan, agreed in February."

And above all, she writes, "Europe has resigned itself the idea that the troika's report on Greece will be negative, and that as soon as it hits the in-tray of German Chancellor Angela Merkel, the debt-strapped country will find all its aid money cut off. At that point, Athens will have no choice but quit the eurozone, default on all its debts, and start printing its own currency."

Separately, Christopher T. Mahoney, a former Vice Chairman of Moody's, isn't buying into the idea that a Greek exit/default/repudiation would be no big deal. After all, Europe has been moving heaven and earth for the past two years to prevent a Greek exit.

Mahoney's prediction is that Jean-Claude Trichet, the former president of the European Central Bank, was right all along when he said that default by a eurozone government was impossible and "unimaginable." 

"First of all, Greece owes a lot of people a lot of money: the ECB, the EFSF, the IMF, the European banking system, and all of the hapless depositors in Greek banks. They will all be defaulted upon, with varying consequences. Just because we have all "known" that this would eventually happen doesn't mean that the world won't be thunderstruck when it does. A Greek exit will be a very big deal with a plethora of known unknowns and unknown unknowns."

"A Greek exit, if it occurs, will be a Black Swan as big as Lehman. It will be ‘the' event of 2012 (unless Spain goes too)."

"A Greek exit may have lost its horrors for Herr Rosler, but not for me."

 

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