Slovakia, the mouse that roared.

[Sheilbh]

I don't get your company going bust analogy Marty.  If Greece defaults and exits there's nothing that prevents the other members from maintaining the euro as their currency.

I think the Euro would probably collapse.  There'd be so much fear of as Viking said Ireland, Spain, Italy and Portugal leaving that the cost of any further bailout for those countries would increase to an implausible level and I think markets would start looking more suspiciously at, say, Belgium and possible France. 

Member states need to be able to go bust within the Euro if it's to work as a currency, just as is, I believe, the case with US states.  I don't know, but my opinion is that if Greece left we'd be looking at a Northern European Euro before long.  With a prolonged recession and a second financial and banking crisis of greater magnitude than the last.

[Zanza]

The Slovakian PM made the vote a vote of confidence on herself because she thought the MPs wouldn't dare risking the launch of a European shitstorm to oust her. She went all in and lost. There was nothing in this vote about the moral questions of the EU and the eurozone, or about anything else in the world but internal Slovakian politics.

This. The failed vote was domestic power politics, not on the issue itself. It was always clear that there would be a majority in the Slovakian parliament for the issue. That's why they voted again on it just one day later and passed the EFSF enlargement.

[Admiral Yi]

Member states need to be able to go bust within the Euro if it's to work as a currency

I don't see why that's not the case right now.

[Zanza]

They're in the back room discussing Eurobribes right now. Then they'll just keep putting it up until it passes. Just like Lisbon.

It passed a day later.

[Zanza]

Note, the likely result of this is a big bribe to Slovakia or a bi-lateral bailout by Germany.

The result - as was known beforehand to everybody who cared - was that the opposition voted in favor of the issue on the next day.

[Warspite]

If we let Greece fail and kick it out the Euro, isn't the EU just sending a big signal that it might not be willing to back a whole host of other eurozone states? Aside from punishing Greece by condemning it to at least a decade of economic doldrums (despite everyone having nodded and winked when our Hellenic friends joined a completely unsuitable currency system), I don't see how this would forestall more devestating attacks on Spain, Ireland, Italy and Portugal - and then god knows who else. EU member states have dithered and dithered in taking effective action, and there is no reason to believe this will change. So what are markets to make of an EU that can't take decisive action, and is now not even backing the weakest members?

[Zanza]

If we let Greece fail and kick it out the Euro, isn't the EU just sending a big signal that it might not be willing to back a whole host of other eurozone states?

Letting Greece (and other insolvent states?) fall would only work if there was a credible way to support the illiquid but solvent states (e.g. Spain) in regaining their liquidity.

Aside from punishing Greece by condemning it to at least a decade of economic doldrums (despite everyone having nodded and winked when our Hellenic friends joined a completely unsuitable currency system),

I honestly don't see any way around that, no matter what.

I don't see how this would forestall more devestating attacks on Spain, Ireland, Italy and Portugal - and then god knows who else. EU member states have dithered and dithered in taking effective action, and there is no reason to believe this will change. So what are markets to make of an EU that can't take decisive action, and is now not even backing the weakest members?

I think distinguishing between insolvent and illiquid member states is key here. The latter could be supported by unlimited liquidity from say ECB or EFSF, the former should be allowed to default and remain in or leave the Euro.

[Iormlund]

I am no economist, but look at stuff like the industrial statistic from Germany: in contrary to the expectations they actually showed some growth.
There is nothing wrong with the productive side of the economy - there are no resource shortages or anything. There is a serious problem with the financial markets because decades of blowing away printed money on welfare and other careless government spending is hitting back hard, and trust in the system is near zero.

I am afraid that if Greece gets bailed out, that lack of trust will remain. So let them burn. Spend the money on surviving the initial negative reaction on the markets. Cleanse the system and start anew.

Last I heard, Germany was going strong until Q2 and is now as stagnant as the rest of the big players. Which is not surprising since its biggest trading partners are all in trouble.

Also, it is precisely lack of trust that a default will create. Lack of trust in Ireland, Portugal, Italy, Spain ... and if any of those last two goes down we're in deep, deep shit.

[Zanza]

Here is the prediction for Germany. The last bit is good news if it actually happens (btw. that's not how the EU measures unemployment - that's lower), the rest is not unexpected. 

The leading German economics institutes have painted a sombre picture of Germany's economic outlook in an assessment presented in Berlin on Thursday.

The experts predict a sharp economic downturn for 2012. They say gross domestic product (GDP) will sink from an expected 2.9 percent this year to just 0.8 percent in 2012.

Their original growth projection for 2012 was 2 percent. Germany saw unexpectedly good growth in GDP at the start of the year, which has since stalled.

On a more optimistic note, the report also predicted a slight reduction in the unemployment rate from 7 per cent this year to 6.7 per cent in 2012.

http://www.dw-world.de/dw/article/0,,15457269,00.html

[The Minsky Moment]

Germany's problem is that a chunk of their economy involves net exports to financial weak EU partners that run chronic current account deficits - including Greece, Spain, and Portugal. 

One cannot run a fixed exchange rate system -- which is what the euro is -- without some viable mechanism for resolving chronic current account imbalances.  But the eurozone just buried their hands in the sand over this problem.

[Razgovory]

What is the effect of burying your hand in the sand?

[The Minsky Moment]

What is the effect of burying your hand in the sand?

It makes it much, much harder to clap.