ECB grandee bangs panic drum on Grexit consequences

Former European Central Bank president Jean-Claude Trichet tried to convince markets that Grexit would be as catastrophic for the Eurozone today as it was at the height of the debt crisis. Greece has a population of just 10 million people, compared to 334.5 million in the Eurozone – its GDP is one sixty-eighth of the Eurozone’s. Come on, Mr. Trichet!!

In a video interview with the Financial Times, Mr. Trichet said Grexit would be “an absolute drama for the people of Greece,” and also a huge shock for the rest of Europe.

It is incredible how Eurozone officials can worry more about the threat of Greece leaving the Euro, a country which probably should never been there in the first place, compared to Vladimir Putin’s apparent intentions with Eastern European nations.

Jean-Claude Trichet

Mr. Trichet thinks Grexit would be very bad for Europe.

Perhaps Mr. Trichet was being defensive, given that he led Eurozone efforts to bail out Greece five years ago when its fiscal crisis erupted.

A growing number of economists globally, and now within Europe itself, believe the simplest solution for the Eurozone and everybody concerned would be to just let Greece leave.

Eurozone’s financial institutions are in a much stronger position now compared to five years ago. Mario Draghi, ECB’s President, has policy tools in place whereby the region would withstand unexpected stresses, such as a small nation leaving the currency, much more smoothly.

Mr. Trichet says anybody who makes that assumption is making a big mistake.

Mr. Trichet thinks financial strategists and economists outside the Eurozone do not understand the region. He says they underestimate the political forces holding the currency union bloc together. Over the past eight years membership has grown, he points out. But mightn’t that be just the problem? Perhaps if the Eurozone were more selective about who could join, things would work out better?

He believes that the ultra left-wing Greek Syriza-led government, which formed a coalition with an ultra-right wing party, will be able to secure a deal with creditors that was “fully compatible with staying in the euro area.”

Finance Ministers approve Greek reform proposals

Eurozone finance minister today approved Greek reform proposals that were submitted as a condition for securing an extension of its bailout by four months.

According to the Eurogroup, national procedures – parliamentary votes in several member states to approve the deal – have already started.

Greece offered to combat tax evasion and to reform the public sector.

However, the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, commented that the proposals lacked “clear assurances” in key areas.

Greece has a debt that currently stands at €320 billion ($363 billion, £237 billion). Its current €240 billion bailout expires on Saturday.

FT Video – Trichet on Grexit