Photo: ceesjw (Cees Wouda)
UBS’s economics team thinks that a Greek exit from the euro is unlikely because the costs are just too high.But should that scenario come to pass, they wonder if the European Central Bank alone will be able to manage the ensuing bank run and contagion.
From a note to clients this morning:
“The real issue, however, is that we are not sure that the ECB can really stabilise the situation. If a bank run in the wake of a Greek departure from the Euro is the problem, we believe that any ECB action is likely to prove insufficient and would only provide temporary relief. Action by governments and politicians is what is required, in our view.”
The action they’re referring to is a fundamental reform of the flawed Eurozone. As it currently exists, it does not have the sort of institutions required for a monetary union to function argues UBS. A real solution will take the sort of commitment required to start the union in the first place.
“If the Euro’s existential crisis continues to grow, steps will be required to prevent the contagion effects. One option may be to propose a modern Maastricht Treaty. Just as the original Maastricht set out a timetable to achieve monetary union, so a modern Maastricht could lay out the necessary steps to correct the dysfunctional monetary union that now exists. A credible plan of action that commits to the continued existence of the supposedly irrevocable monetary union could reduce the risk of politicians being overpowered by the centrifugal forces in the Euro area.”