The news that teh Eurogroup has entrusted member states to prepare an emergency plan just in case Greece abandons the euro caused more market turmoil yesterday.
The Spanish risk premium rose above 482 basis points, its stock market dropped to an yearly low at 6,440.5 points and the euro priced under 1.26 on the dollar, which is its lowest value in 22 months.
It?s likely that markets knew about these risks before they were disseminated widely. Further, by the morning Greece?s former Prime Minister, Papademos, said that the risk of his country abandoning the euro is ?real.? Only Greece commented on the news; other institutions and countries kept quiet as they prepared for the start of an additional summit to discuss growth in Europe. People doubt the effectiveness of another summit.
Europe?s attention is focused on the prolonged agony in Greece, and member states are preparing to take a defensive stance against the impact that Greece?s departure would have on their economies and financial sectors. Some estimations suggest that 400 billion would be lost collectively. At this point, the split that?s been talked about for months seems imminent.
Indeed, there is a proposal to offer the Greeks up to 50 billion euros if they agree to leave the EU, because they will need some capital to return to their former currency, the dracma, and reorganize internally. Pushed to this extreme, European leaders would would also be obligated to approve a joint plan to inject a stimulus into struggling countries in order to boost their recoveries and dampen the impact of Greece dropping the euro.
