Tuesday, May 22, 2012

The Week Ahead; The Worst Case Scenario

The Week Ahead; The Worst Case ScenarioPalm Beach, FL 5/22/12 (StreetBeat) -- As one can readily imagine, a man in my position is constantly on the move. You don’t get to be the assistant to the deputy administrator for monocotyledon classifications of the European Union’s Community Plant Variety Office (CPVO), regional sub-division in Brussels, without being a go getter. It can certainly be said that I fill my seven hour work day with action befitting my portfolio. That kind of exhausting schedule really builds an appetite, which I feel I can sate by justifiably tapping the CPVO expense account, but of course.

So I find myself once again settling into the familiar surroundings of Comme Chez Soi. You must know it, the Michelin three star joint just off the Avenue de Stalingrad. Sure its upper end, but I do the EU a great service and this is quid pro quo at the very least. Besides, as their wine list clearly states they carry “a fully detailed and well supplied heading of white and red wines for less than EU100.” Not that I care to drink that swill, but I could if need be. But then again do you really think the EU would want a key team member, such as myself, to lower his standards and possibly risk having that reduced vision creep into one’s mission; yeah, I know it’s ridiculous to even consider it, but it’s my nature to look at all sides of an issue.

Waiter: Good evening, once again, sir. Would you like to start with the usual?

Why not? The Royal Belgian caviar “Oscietra Gold” sounds great.

You work for the European Union, don’t you sir?

That’s who pays the bills.

Well, a couple of top ministers dined here just shortly before you arrived. They had a fascinating conversation about the situation with Greece and the chance that they could leave the currency union and go back to the drachma. Very interesting indeed; what do you think will happen?

Hmmm, actually I’m knee deep in trying to figure out how the EU can charge a fee to Eastern Europe for wind-blown pollination from Western European grasses. Tricky and important stuff like that leaves me no time to worry about how to pay for a holiday in Greece. What happens in Athens stays in Athens, right?

Not quite sir, not according to the ministers. They say that there was never before a thought given to the possibility that a country could leave the euro zone, that the only thing to worry about was how to accommodate the new arrivals. But since last autumn there has been a recognition, up to the most senior levels of European leadership, that Greece could exit the single currency union; might actually be asked to go, in a here’s your hat what’s your hurry sort of way. The ministers said that some contingency plans are being made, even by the ECB, to prepare for a Greece exit.

They seemed very worried about the Greek vote coming up in June; “never good to have the people decide their own country’s fate,” they said, it was like the blind leading the blind; you never know who they might elect, maybe even someone who will lead them out of the euro and back into the drachma.

Well good riddance, I say. I’ll take the Beef fillet with black truffles please.

The beef, certainly sir. But, in regards to Greece, the ministers were not too sure about the riddance being good if Greece were to leave. They kept referring to the “worst case scenario”. The vote in June, they say, may end up being the catalyst for Greece to exit the zone and because of that senior EU leadership has a conscious strategy to make it very clear to the Greek voters that if they decide to cut and run the consequences will be ominous; the country will be ostracized, their economy will be in ruins and they will lose an entire generation to emigration in search of work. They want to be sure the voters in Athens hear them loud and clear that leaving the euro zone would be a disaster for them.

Well, that could be my good man, but I am pretty sure the “worst case scenario” is that the banks in the rest of Europe, including the national central banks, such as the Bundesbank, will take a hit on any debts owed by Greece because, sir, who in their right mind would want to be paid in drachma?

Well, no that was not the “worst case scenario” that seemed to have them terrified. They were not happy about the potential losses that would result from Greece leaving; both from Greek debts and from the fear of contagion rippling through to the debt of other countries such as Spain, Portugal or Ireland. But they figured that they could build a tall enough firewall to fence in the remainder of the zone and fence out most of the ripple effect from Greece. It wouldn’t be the best thing ever, but not the “worst case” either. It could even turn out that a disastrous outcome in Greece from their decision to leave the euro and print the drachma would focus their minds in the euro zone and result in a more comprehensive union; fiscal, political, etc that would satisfy everyone, even Germany, without going overboard with Berlin’s austerity hair shirt.

Espresso please. But first please tell me what this terrifying “worst case scenario” of which the ministers spoke?

Clearly there is one thing that has the EU ministers most afraid. The “worst case scenario” that could bring down the euro zone as we know it.

What? What is it?

The “worst case scenario” is that Greece stops using the euro, re-installs the drachma and that the country prospers, possibly in short order, as a result. The ministers were as white as ghosts when they talked about Greece improving its current account deficit with cheap exports and a reinvigoratedtheir tourist industry. Olive oil and other products leaving the country in massive amounts while discount seeking vacationers come in at a record pace. They shuddered as they discussed the possibility of China investing in the Greek infrastructure and revitalizing the Mediterranean ports as their own logistics center for exports to the rest of Europe.

And if all this were to occur, the ministers moaned, then what will be the reaction in Madrid, Dublin, or, don’t even say it, Rome? They envisioned mass protests by the otherwise unoccupied youth in those countries, possibly leading to, don’t say it, more votes that become referenda on using or leaving the euro. And they worried that one or more of these other exiteers could see the advantage of being an early mover and then no firewall would be big enough to cover the losses on the debt from these countries. The worst case is Greece succeeding on its own, not the reverse.

The ministers left without desert.

This cannot be good for the EU Plant Variety Office, check please.

Should I add it to the EU tab?

But of course.

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