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Macroeconomics  |  May 17, 2012 06:30:45

The euro area seems to lose its "poor child"

Talks about a possible Greek government collapsed and the country waiting for the 17th new elections in June. Greek politicians chose an uncertain path that will cause many a sleepless night for many people, especially investors who even do not know where exactly is Greece. (Source: CSOB)

The results of the election is in our opinion can send power to the party, which in principle refuse to cooperate further with the official creditors, ie the IMF and the EU (which owes over 250 billion euros).Such a scenario bearing in mind that the Greek state still managed with the primary deficits (the budget is in the hole, even after adjustment for the cost of debt service) will lead to uncontrolled bankruptcy of the country.

Return drachma

Greece does not have enough euros to pay or pensions, or for example, that the crisis has helped domestic banks. If it is closed while hemorrhage from official creditors, the country no choice but to return to the drachma, and all lack the means to start printing again.

In other words, the first exit, one of the members of the euro area now seems very likely, the consequences of opening this Pandora's box can be very dramatic. Let's leave aside technikálie now, how practicable monetary separation - after all we, as citizens of Czechoslovakia, we still remember that something can be done quite easily.

What should make everyone wonder is how we manage to suppress the infection, which will inevitably spread across Europe (which is actually already happening). Vision is needed to clamp while the ECB, which is virtually the only combat-ready institutions that can panic in the form of capital outflows from the euro area vulnerable to tame.

What, therefore, from the ECB in the near future we can not wait? Probably will be renewed intervention in the bond markets, further reduction of official interest rates, and probably will come the next round of long-term repo operations (LTROs). In addition, it is possible liquidity or special interventions in those countries of the monetary union in which there will be a massive outflow of deposits.

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