| Can 94% of the EU allow the 6% accounted for by the profligate periphery to bring the whole house down ? As we pointed out last week, if Greece were allowed to default, the ECB, and countless commercial banks would be in serious trouble. That outlook, and the insistence of various ECB officials that default is off the table, supports our view that core Europe can, and will, save the peripherals. |
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| The immediate question is of course “Save them for how long?” A period of up to two years appears to be the current answer. And then? On this second question our crystal ball is cloudier. Can Greece, Ireland and Portugal at least return to primary budgetary surplus in two years? An optimist might cite countries which have staged a dramatic recovery, such as Iceland and Argentina. A pessimist (or realist?) might point out that the Greeks have never paid their taxes properly and, despite (or perhaps because of) ongoing austerity measures, are unlikely to do so now. |
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| An alternative question occurs to us concerning what could happen over a supposed two-year grace period. |