While the politicians and the bankers of Europe are starting to disagree loudly in public, the time may be running out on them very soon:
From Forbes:
Roubini Warns Of Euro Break Up As Greek Credit Rating TumblesGreece and the Eurozone increasingly resemble a dying animal, with vultures circling above. A double-whammy of terrible news hit on Monday, with a multi-notch downgrade of Greece’s credit rating by S&P, making it the worst in the world, and a gloomy commentary by Nouriel Roubini who warned that “the Eurozone heads for break up.”
“The muddle-through approach to the eurozone crisis has failed to resolve the fundamental problems of economic and competitiveness divergence within the Union. If this continues the euro will move toward disorderly debt workouts and eventually a break-up of the monetary union itself as some of the weaker members crash out,” stated Roubini, also known as Dr. Doom, in an op-ed for the FT.
Roubini’s view echoes S&P’s, which downgraded Greece’s long-term sovereign debt rating to CCC from B, effectively making it the “lowest rated sovereign in the world, having fallen below Ecuador, Jamaica, Pakistan, and Grenada.” The latest downgrade of Greece’s sovereigns is tied to “a significantly higher likelihood of one or more defaults” probably in the form of commercial debt restructuring. What was once an emergency option reserved for the worst-case scenario, giving bondholders a haircut while extending maturities, is now essentially seen as a given by most market participants. “Debt restructuring will happen” wrote Roubini, “the question is when (sooner or later) and how (orderly or disorderly).” (Read Greece: Preemptive Debt Restructuring Or Eurozone Exit).
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The only way to restore peripheral competitiveness ... is by exiting the monetary union. “Leave the euro, go back to national currencies and achieve a massive nominal and real depreciation,” wrote Dr. Doom. The “Eurozone exit” option comes with a heavy burden, as it would imply “major real depreciation and capital losses on the creditor core,” being especially painful to Germany and its banking sector, but also hurting France and the rest of the Eurozone.
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With restructuring in Greece now looking all but inevitable, the risk that Ireland and Portugal will have to follow suit will rise exponentially. Once the rules that govern the system are broken, moral hazard ceases to be an impediment, a circuit breaker. Once people lose faith in a system, a vicious cycle, like a bank run, propagates through, like a virus through arteries and veins, which will put it on its knees.
