As German Finance Minister Wolfgang Schaeuble dares Greece to quit the euro, investors and economists are mapping out what he and fellow policy makers need to do to save the single currency if their bluff is called.
Emergency lending and bond buying from the European Central Bank coupled with recapitalizations and deposit insurance for lenders and broader powers for the region’s rescue fund are among the prescriptions for insulating Spain and other cash-strained nations from what Citigroup Inc. calls a “Grexit.”
A post-election poll of 1,253 Bloomberg subscribers last week found 57 percent expect at least one country to leave the currency this year, the most since the survey began in 2010 and up from 11 percent in January 2011.
“After markets had tested the resolve of the ECB and found it to be firm, I don’t think the ECB would end up owning all the sovereign debt,” Brown said. “Suddenly investors would be very interested in owning Italian debt knowing the ECB stood behind them.”
Those leaders would also have to forge ahead with efforts to strengthen political and fiscal ties with the end game being the issuing of joint debt, said Kirkegaard at Peterson. “There will have to be significant deepening of integration to show where the remaining 16 are going,” he said.