Greece plans an orderly exit out of the Eurozone according to two sources close to Mr. Papademos, Greek Prime Minister, who spoke on condition of anonymity earlier today.
The sources confirmed that plans are ready to return to a legacy currency given the current circumstances and that such exit would be dealt with, quote “in as orderly a fashion as possible” unquote.
The plan does not come as a surprise but the timing may be surprising to most members and investors while negotiations about a severe haircut with the IIF are still ongoing.
Last year’s announcement by Mr. Papandreou, former Prime Minister, that a referendum would be held to decide whether or not to stay in the Eurozone may have set the precedent for developing a plan that apparently will be set in motion.
The stalemate in negotiations about the depth of the haircut on some of the outstanding Greek sovereign debt, said to be capped at 65-70% while Greece is looking for more concessions, may have set things in motion as the ultimate alternative.
Mrs. Merkel, German Chancellor, reiterated that she was willing to protect the integrity of the Eurozone; she also made it clear that her willingness to bail out Greece have limits.
Germany is willing to combine the temporary EFSF (European Financial Stability Fund) with the permanent ESM or European Stability Mechanism but at the same time is trying to build firewalls around Spain and Italy to limit the Greek contagion from going any further.
That means that Germany is willing to let the Trojan Horse go in order to protect the integrity and credibility of the euro as an international currency.
Greece obviously finds itself between a rock and a hard place and whichever decision is ultimately made, the pain will be the same.
An exit, no matter how orderly this can be executed, will mean a 25% devaluation of their legacy currency. Staying in the Eurozone will mean more austerity packages as imposed by the ECB/IMF as part of the bailout package.
The latter is strongly opposed by the Greek voters, as seen with strikes and protests for several months now.
A Greek exit strategy will probably not be announced officially until early March when the EU finance ministers meet.
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