(Reuters) – European finance officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro.
EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen – no one Reuters has spoken to expects Greece to leave the single currency area.
Elections are coming at the end of the week. And if Syriza wins, the party’s leader has said they will tear up the “deal” and walk off.
The middle finger will be end of the game, if it occurs.
The problem with “deposit guarantees” is what happens if you provide them and then one of the nations exits and devalues. The effect of such a guarantee would be to provide an instant windfall to anyone who has a deposit in a bank inside the area where the exit occurs.
That’s the problem with such a cross-border guarantee system and why it won’t happen.
But without it, the bank runs can’t be avoided if the people get the idea that they’re going to get an enforced “holiday”, which in turn creates the self-perpetuating cycle.
We’re still not facing the truth here — those who lent money with no reasonable capacity for the debtor to pay must take their loss. Those who borrowed and can’t pay must go bankrupt. And governments must stop spending more than they tax.
Finally, the price of borrowing money must rise — dramatically — so that it reasonable reflects the risk of non-payment, while at the same time credit must not be extended beyond collateral — that is, the game of “infinite credit expansion” beyond the rate of GDP advance in the economy must be halted and allowed to reverse.
None of this is particularly likely. But the game that has been played for the last four years is now resulting in half-lives measured in hours rather than months, weeks or days — and as such what we’re headed for is a credit collapse — like it or not.
Creditanstalt my friends…..