FXstreet.com (Barcelona) - As German exposure to the periphery (through the European bail-out mechanisms and the ECB’s balance sheet) grows ever larger, the question arises of whether a halt will eventually be called. Last year, we speculated on the possibility of a German exit from the Euro to limit these fiscal exposures and we considered whether Monetary Union would eventually dissolve, should the fundamental adjustments in the periphery required to stabilize the Euro prove politically and/or economically infeasible. “We concluded that both eventualities were highly unlikely.” writes the Economics Research Team at Goldman Sachs.
While the Euro area remains intact, the past year has not been as kind to this prediction as we expected in September 2011. Exit from the Euro – hitherto a taboo topic among European policy makers – has been openly entertained for Greece on several occasions during the past year, notably by the German Chancellor at the moment a referendum on Greece’s austerity package was envisaged by the Greek administration. “While recent policy initiatives – the ECB’s OMT program, with its focus on eliminating ‘convertibility risk’; Ms. Merkel’s recent visit to Athens, appear designed to put the genie of Greek exit back into the bottle, this may prove easier said than done.” the team warns.
While the Euro area remains intact, the past year has not been as kind to this prediction as we expected in September 2011. Exit from the Euro – hitherto a taboo topic among European policy makers – has been openly entertained for Greece on several occasions during the past year, notably by the German Chancellor at the moment a referendum on Greece’s austerity package was envisaged by the Greek administration. “While recent policy initiatives – the ECB’s OMT program, with its focus on eliminating ‘convertibility risk’; Ms. Merkel’s recent visit to Athens, appear designed to put the genie of Greek exit back into the bottle, this may prove easier said than done.” the team warns.
