Would it be better if Greece got out of the EU? The euro rallied today, and while there were rumors of intervention by the ECB that certainly helped, a number of traders noted that rumors that Greece might leave the ECB (later categorically denied by a government spokesperson) was viewed as a potential positive for the EU...and the euro.
Why? Certainly the EU dissolving would not be good news, but controlled exit of the weakest members could be a positive. We are talking Greece, and potentially Portugal as well.
The reason? There's almost no chance Greece can avoid a devaluation. Currency analyst Michael Woolfolk at Bank of New York, and other traders as well, note that debt service after 3 years for the Greeks will take up at least 25 percent of their budget (US debt service is about 5 percent of the budget).
That is not sustainable. They will almost certainly have to devalue their currency. They will leave the EU, and go to a devalued drachma.
One point: the EU membership is a roach motel..you can check in, but not out. There is no mechanism for member withdrawal. That will have to change.
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