This is as bad as we’ve feared. We regularly warned that there were no signs that Greece was preparing in a meaningful way for a Grexit (high level discussions like “first we seize the Bank of Greece building” don’t cut it), but sources close to Syriza have said in public what amounted to the same thing, that the government was completely preoccupied with the tactics of the negotiations and was not thinking or acting beyond that.
From the BBC’s Robert Peston (hat tip Nathan):
So the first rather chilling thing I’ve learned, from well-placed bankers, is there have been no conversations between the Bank of Greece, the government or regulators and Greece’s commercial banks about the technicalities of leaving the euro and adopting a new currency.
This is astonishing – and some would say pretty close to criminal – given that on Wednesday night the president of the European Union, former Polish prime minister Donald Tusk, was explicit that this weekend’s negotiations were all about whether Greece would stay in the eurozone.
It’s “close to criminal” not to have considered it when European leaders told the Greek government before the election that they regarded an “Oxi” vote as tantamount to leaving the Eurozone and the ECB stopped increasing the ELA. The ECB has the means to force a de facto Grexit and top European officials were saying with a united voice that they were prepared to go that far.
I’ve been saying privately for weeks that this feels like Lehman: one side not willing or able to hear it won’t get its rescue, the other side not choosing or able to hear (until very late in the game) that they weren’t getting the message and neither side preparing for the rupture. The Administration never called a bankruptcy lawyer to understand what a securities firm bankruptcy would mean. Lehman’s attorney filed only a short-form bankruptcy, which meant the firm collapsed in the most destructive manner possible.
This comparison clearly understates the consequences for Greece and potentially Europe. With pharmaceutical supplies, particularly critical ones like insulin running short, lives are already at risk. Greece is not self sufficient in food. Calorie consumption in Greece has already fallen by 30% since austerity started, and only some of that can be attributed to population decline. Food suppliers are already finding it impossible to import. What happens when Athens, one of the densest cities in the world, begins to run short?
A Grexit will be a disastrous, inexcusable failure of leadership. Many people, virtually all of them the wrong ones, will pay for it.