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poker Greece future
Repeating and stressing that the EU will do its utmost to keep Greece within the Euro gives the impression that EU is terrified by the nuclear fallout of any member leaving the Euro. It strenghtens the hand of Alexis Tsipras of SYRIZA in claiming that the EU can be bullied to backtrack on its austerity demands and that it can be forced let Greece in the Euro. This is just as well as saying that the EU would agree to continue subsidizing indefintely Greeks living beyond their means without the need for structural adjustments.
It would be much fairer and equitable if the language of EU leaders becomes consistent, clear and unambiguous. Much better for the EU to tell Greeks that the next elections are more like a referendum on whether they want to stay in or leave the Euro and any democratic mandate to any party to renegotiate the austerity package would be taken as a decision to leave the Euro.
In the meantime the EU must be seen to be making clear and credible preparations to build a firewall around Greece to contain the damage from their Euro exit. This must at least contain:
- Huge, may be unlimited, ECB liquidity injection initiatives to ensure that Banks in all EU countries other than Greece have all the necessary liquidity to meet and nip in the bud any loss of confidence by depositors in EU countries outside Greece.
- Display of readiness by the ECB to intervene directly in the bond markets to keep within serviceable limits yields on bonds of countries undergoing and adhereing to austerity programmes.
- Launch of a huge fund whereby the EIB will supply fresh capital to EU banks that are judged insolvent not merely illiquid. This especially applies to Cyprus given their exposure to Greece, and to Spain given the bad assets still lying on their banks books.