A Model For Failure
Greece is unique as a model for failure within the European Monetary Union.
It represents a new species of financial crisis, accurately portrayed by a friend several years ago, as a balance of payments crisis, a sovereign debt crisis, a banking crisis, a domestic political crisis, and a crisis of international relations, all wrapped into one.
As lingering, unresolved issues come to a head once again, we’ve spent some time reviewing the evolution of our thinking over the years. See Pandora’s Box and Ciao Ciao Euro for perspective. It would seem not much has changed since then, with perhaps one important exception – an accelerated run on Greek deposits may represent the endgame for Greece and/in the Euro. Bank deposits represent the foundation of the system. Capital controls have bought Tsipras time, but unless a deal is reached in the coming days, they are unlikely to inspire confidence and could indicate the country’s first step towards “Grexit” – consequently, we think the optimism embedded in the price of most risk assets neglects the risks that accompany increasing brinkmanship.
We highly recommend rereading Variant Perception’s Primer on The Euro Breakup for anyone interested in a clear analysis of the problems leading up to the current situation. The paper was first published in 2012. A lot has happened since then, yet little has changed.