John Kay explains why it’s not just a simple cut-and-run for Greece or the rest of the Euro:
When countries joined the single currency, a relatively simple piece of domestic legislation converted contracts in drachmas, pesetas, markkas and Deutschmarks into contracts in euros at a prescribed exchange rate. But you cannot simply reverse that process when countries leave the single currency. You have to prescribe which contracts are now to be fulfilled in drachmas and which remain in euros or converted into Deutschmarks. That determination is politically fraught, technically complex and subject to long legal challenges.
About two years ago some large businesses and wealthy individuals began seriously to ask, “if the euros were to unwind, in which currency would my asset or contract be denominated?” The issue is not whether the euro coins in your pocket carry an Athenian owl or German imperial eagle. The issue is the status of bank deposits and loans, residential mortgages and commercial contracts, as well as wages and prices. The drain of funds from Greek banks is an indication that ordinary people are now thinking in these terms.
Europe’s hapless politicians, having asserted that exit from the single currency was impossible, must now claim that exit would be relatively easy. Only then can they plausibly threaten the Greek electorate with expulsion if they vote the wrong way. But exit was never impossible, never easy and even when it was publicly unthinkable central banks would have been negligent not to have put in place contingency plans.
That is why even though Greece is a small part of the eurozone, a Greek exit is an existential threat to it. Once a path to exit has been defined, business and individuals will have a template for understanding the consequences of further unwinding.
