Not a natural blogger but I’ve been persuaded to give it a go.

I start with Greek default/exit from the Euro.   First, nothing changes. Read this 

“Following its recognition as a state in 1832, Greece spent the rest of the century under varying degrees of foreign creditor control.  On the heels of default on its 1832 obligations, the entire finances of the country were placed under French administration.  In order to return to the international markets after 1878, the country had to precommit specific revenues from customs and state monopolies to debt repayment.  An 1887 loan gave its creditors the power to create a company that would supervise the revenues committed to repayment.  After a disastrous war with Turkey over Crete in 1897, Greece was obliged to accept a Control Commission comprised entirely of representatives of the major powers which had absolute power over the sources of revenue necessary to fund its war debt.  Protests were raised in the Greek parliament that the commission effectively suspended the country’s independence” (from the excellent book by Manuel Hinds and Ben Steil Money, Markets and Sovereignty.)

Whether default or euro exit actually will occur will primarily be dictated by the Greek people.  If they really want not to leave the Euro or see their Government default, they just have to come together in an exercise of collective determination not to.  This would involve wage cuts and improved fiscal discipline, much as we have seen can be done in Ireland.

I rather doubt they have the collective will to achieve this.  Does it matter?  Not very much.  Exit will probably be a good thing.  They will devalue by 30-50% and while they  become poorer than if they had buckled down, we would all get on with life.  There would be winners and losers of course in the rest of the financial system – but no loser would now be caught unawares – and the likelihood is that the banking system has now adjusted (made provisions, altered its geographic mix of assets and liabilities etc)  to allow it to carry on under this outcome.

Would there be a knock on effect elsewhere in the Eurozone. Further flight of deposits from Portugal’s banks for example. Highly probably. And Portugal has the same choice as Greece and again it will likely opt implicitly to exit.

My view however is that it will stop there and Spain, Ireland, Italy will all stay in the Eurozone and do what is necessary to achieve that.

The final result will be a smaller Eurozone but a stronger one.