It seems that conventional wisdom is that if Greece leaves the Euro we are all doomed to be living in caves, eating our own filth. Or something.
The idea is that those same "confidence fairies" that magically hover about and sprinkle magic confidence dust (it's hard work, which is why it's called a "confidence job") onto the markets will shriek and head for safe havens in, I dunno, China. Massive bank runs in Spain seem to be the fear.
The idea is that if the Greeks leave the Euro it will undermine faith in the sustainability of the Euro in the other PIIGS.
First of all, I think the confidence fairy is about as real as the tooth fairy. I think Greece leaving the Euro will be a bad thing for Greece in the short term, but good in the medium term and perhaps bad in the long term.
But I also know this. Britain never joined the Euro. Britain's failure to join the Euro did not undermine confidence in the Euro, why should piddly little Greece leaving the Euro be a cataclysm?
Also, if Greece leaving the Euro creates a mini-panic that unsettles German central bankers, maybe they will stop being such sanctimonious pricks and help out Spain. Poor Spain had budget surpluses, before the markets attacked their debt. Why did the markets attack their debt?
I don't know, markets aren't frakking rational!
If Greece leaves the Euro, the markets will freak out for 48-72 hours before everyone sort of realizes that nothing has really changed unless you're Greek. Since most people are not Greek, things will settle down.
UPDATE: Apparently the worry is... Are you sitting down?... Do you have pearls close by for clutching?
Apparently the worry is that French and German banks held Greek debt and insured them with Collateralized Default Swaps. Yes! Market innovation to the rescue again!
Remember, as we move into our shiny new Hoovervilles, that markets - especially derivatives markets - should never be regulated.
I have a pitchfork in my garage.
I'm just saying.
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