German Finance Minister Wolfgang Schaeuble has pointed to the calm in global financial markets this week as evidence of Berlin’s public position that a Greek exit from the euro zone, while not desirable, would be manageable.
Whether that is a negotiating tactic or something the German government really believes is debatable. What is not true is the German’s Finance Minister’s assumption.
Markets have been relatively unmoved through the European drama not because they view a Greek exit from the EMU with complacency but because the nearly universal expectation is that in the end the Europeans will find a solution, however imperfect, that permits Greece to obtain new funding and remain within the euro.
A Greek departure from the eurozone would be fraught with uncertainty for the European financial system and for the world. Despite the assurances of government officials, the ramifications of a national default in Europe are not well known and the effects cannot be surely understood until they happen.
In 2008 the U.S. government thought that the Lehman bankruptcy would be contained and were badly mistaken. In then Treasury Secretary Timothy Geithner's estimate, "If we had known then what we know now we would never have let them go under.”
Germany and the world should hope they never have to test the accuracy of the Lehman analogy.
Wolfgang Schaeuble has not repealed the law of untended consequences.
Chief Market Strategist
WorldWideMarkets Online Trading