Amusing: just after blogging about why I think making a plan ready for Grexit would have been self-fulfilling, and sabotaging of plan A, Charles Wyplosz writes on VoxEU that they should indeed be doing that now.
His argument is – echoing Krugman, who is mystified this plan wasn’t executed earlier – that by planning for it carefully, the risk of hardship and chaos associated with a currency interregnum can be reduced, and this makes Grexit a more attractive option.
However, as I stated last time, I’d guess that by planning, openly, Syriza would make any other option extremely unlikely.
It would accentuate the current bank run. While Greece’s future finances were dependent on Eurozone generosity it would also preclude there being any return of the vast sums of money that escaped Greece before capital controls were imposed from returning.
It would also surely harden the creditors’ stance. For a start, it would strain to the limit the ECB’s preparedness to extend ELA to Greek banks. It would act as a counter-signal about the government’s preparedness to implement the conditionality associated with a bail-out. It would make it more likely that the creditors would judge Grexit as the eventual outcome, and thus make them less likely to fund Greece in what would, in that eventuality, be a futile attempt to keep them in the Euro. Full readiness might cost several hundred million euros. Are the Eurozone going to want to see their funding used for that?
From the creditors’ point of view, if such a plan were allowed to be pursued, what kind of precedent would that set for other troubled sovereigns? Imagine how it would change the characteristics of the euro for its holders to know there were vast locked warehouses of many other currencies dotted around the territory. A typical euro holder would be much more reluctant to leave wealth in the form of deposits domiciled close to one of those warehouses. Knowing that the local polity could simply unlock the doors at the slightest whiff of a public financing problem would make a local deposit holder fear re-denomination. Taking into account all this, the creditors will strain to make sure that such warehouses of alternative money are not built, nor the equally important operational ‘warehouses’ of battleplans for currency law change.