Tuesday 21 November 2017

A Grexit would be disastrous and could signal disintegration of euro

Another week, another crisis in the eurozone, but don't be fooled into thinking this won't affect Ireland

GREECE IN CRISIS: People wait outside a closed branch of the National Bank in Athens, Greece yesterday. The bank did not open at 10:30am as usual but remained closed while dozens of people lined outside to withdraw cash. Photo:Yannis Behrakis
GREECE IN CRISIS: People wait outside a closed branch of the National Bank in Athens, Greece yesterday. The bank did not open at 10:30am as usual but remained closed while dozens of people lined outside to withdraw cash. Photo:Yannis Behrakis
Colm McCarthy

Colm McCarthy

Whatever the outcome of the weekend crisis meetings on Greece it has been another dreadful week for the European Union. Greece could fall out of the common currency even before the referendum planned for next Sunday and financial markets are set for a turbulent opening tomorrow. Seven years into the crisis this kind of thing simply should not be happening. There must be senior politicians in France and Germany, the principal architects of the common currency, beginning to wonder if the game is worth the candle.

The design of Europe's single currency was the fruit of intense deliberations from the mid-1980s onwards. The blueprint in the Maastricht treaty was fleshed out in the construction of the European System of Central Banks and the new common currency was finally launched in January 1999. A central feature in the design was the so-called 'no-bailout' clause: if a member state got into trouble there was to be no financial rescue, never mind three-in-a-row, from other members or from central European institutions.

A logical corollary of the no-bailout clause was that eurozone members with excessive debt would default on foolish private lenders. This prohibition of rescue from partner countries' public funds implied, and should have been understood to imply, that losses would end up elsewhere: not with European taxpayers, not with the IMF and not with Greek taxpayers either.

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