Tuesday, May 4, 2010

Former BoE Policy Maker: Greek Bailout May Collapse, Consequences Will Be Disastrous

In an interview with Bloomberg Television in London, Charles Goodhart, former Bank of England policy maker said today that Greece’s bailout may collapse and its debt crisis makes it hard to see how the euro will survive in its current form.

“If this financing deal should collapse, and it might for one reason or another, then there would be a question of what the Greeks could possibly do,”

“Default would be totally disastrous for them and leaving the euro would equally be disastrous.”

“It’s very hard to see how this is going survive this particular test,”

“The euro system has either got to have much more integration or parts of it will fall by the wayside.”

“If the current bailout is put in place, it will be enough to meet their immediate financing problems not only this year but for the next year or two,”

“The problem is that it doesn’t meet their adjustment problems. It doesn’t deal with the problem the Greeks, in part from having too large a deficit and too large a debt ratio, are very uncompetitive and if they actually cut back the deficit as fast as is being required they’re just going to go into appalling deflation.”

Of the deal faild, Goodhart added that Greece “might do a kind of dual currency in which they use their scarce euros to meet their external commitments and in the meantime use an internal IOU, rather as Californian and some of the Argentinian states did, in order to meet their internal commitments”.

“It would be a dual currency and the internal currency would fluctuate compared to the euro.”
Goodhart conludes that Such an exercise would be very messy.

Note that we regularly post straddles on the Euro throough the FXE ETF, whcih have been quite profitable.

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