Should Greece Leave the EU?

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 can check in, but not out. There is no mechanism for member withdrawal. That will have to change.


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