BLOOMBERG: …The potentially dire repercussions have led many to assume that no responsible European policy maker would allow a Greek exit to take place. By this view, all the talk about letting Greece leave is merely a scare tactic. Europe’s leaders will blink first in their game of chicken with Greece and ease the terms of the country’s austerity program.
This logic underestimates a crucial element of the euro area’s political economy: In a union of partially sovereign members without a supranational authority, concerns about moral hazard — the possibility that lenience toward Greece will encourage other countries to misbehave — still carry a lot of weight. Euro-area leaders are not bluffing when they threaten to cut off support from the European Central Bank and let the Greek government run out of money, leaving it to decide whether to dump the euro or remain as merely a euro-ized country such as Montenegro.
What Europe’s leaders will not countenance is a breakup of the euro. Therein lies the silver lining of a Greek exit. To protect the currency union from the fallout, the remaining members will have to move very quickly toward the economic and financial integration that has always been necessary for the euro’s long-term survival… (more)
