To resolve a crisis in which the impossible has become possible, it is necessary to think the unthinkable.So, to resolve Europe’s sovereign-debt crisis, it is now imperative to prepare for the possibility of default and defection from the eurozone by Greece, Portugal, and perhaps Ireland.
In such a scenario, measures will have to be taken to prevent a financial meltdown in the eurozone as a whole.
First, bank deposits must be protected.
If a euro deposited in a Greek bank would be lost through default and defection, a euro deposited in an Italian bank would immediately be worth less than one in a German or Dutch bank, resulting in a run on the deficit countries’ banks.
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