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We must avoid an accidental Greek Euro exit

With the Greek election on Sunday the debate and speculation around what a Greek exit from the Eurozone, and possibly the EU, would mean is reaching fever pitch. Unfortunately, the analysis has for the most part been rather short sighted, mostly in the form of detailed, but doomed to be inaccurate, calculations trying to forecast what bank will be hurt the most or the least or how much the ECB would suffer. In yesterday’s FT, we finally saw some sober analysis in the Euro debate from Moritz Kraemer, head of EMEA sovereign ratings at Standard & Poor’s.

Mr Kraemer paints a very realistic scenario of what would happen if Greece would leave the Euro, which for the most parts echoes what I said last year. This analysis, in my view, is just the reason why European politicians cannot and will not let that happen. It shows why a Euro exit for Greece is not a solution for Greece or the Eurozone and that it would only make matters worse, much worse. European politicians (well, maybe not George Osborne) are very aware of this, but there are 330m people in the Eurozone and a total 500m in the EU to get on the same page and this takes time.

It is a long-term battle against imbalances built up over the past decade, that ultimately boils down to the bond market’s incompetence in pricing Greek bonds, fuelling a credit feast of gigantic proportions in a country that simply was not as credit worthy as Germany, but still priced at the same level as German government bonds. The crisis and the necessary rebalancing is unlikely to see its final solution in a fiscal and perhaps even a political union in the next year or so. Before the end of the decade is a more realistic time frame.

Opinion polls for the Greek election on Sunday are inconclusive and I fear that we will get an election result just as inconclusive. Volatility is likely to rise. An inconclusive or anti-austerity result is likely to turn into a forceful risk-off trade on Monday (unless Merkel and Hollande quickly agree modifications to the Greek bail-out terms), creating good opportunities for long-term investors. Look for the unjustified victims of the sell-off. Patience.

FT.com | We must avoid an accidental Greek exit

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