Goldman Sachs said: “Unless the ECB fiddles with its rules before the end of next year, then from the beginning of 2011, Greek sovereign bonds will no longer be eligible for ECB collateral.”
That’s as close as saying that the Greek Euro will be on its own, in effect a separate currency.
If the ECB fiddles the rules to allow the Greek Euro to remain inside the system, the Euro itself will have to be downgraded, a union of currencies without any standards.
Greece is only 3% of the Euro area, but it is not alone. Italy, Spain and Portugal might equally drift further and further into deficit. Ireland might germanise its economy and tolerate universal wage cuts to stay inside the euro, but the Club Meds are not so easily disciplined.
The crisis has been delayed. But it has not been solved.
In the end of the day will Germany want to carry all of these countries’ economies? When all was on the up, pre-crisis, the price of political union was free. Now the world’s economy is approaching a deflationary recessionary period, the cost of political union is rising.
No doubt the political union will be downgraded as the monetary effects are felt. It’s not just the Euro that is threatened. It is the EU. Only a determined denial of the truth prevents it from being mentioned anywhere.