Facing the Grexit

Could Greece actually leave the Eurozone?

A big switch appears to have been flipped in the last week: talk of Greece exiting the Eurozone has moved from wild blue-sky thinking to the sort of thing Very Serious People write about. The Financial Times is running a series on how such an exit would happen, beginning today with a piece quoting several Eurozone central bankers saying things like:

I guess an amicable divorce – if that was ever needed – would be possible. (Luc Coene, central bank governor of Belgium)

And:

Technically, it [a Greek exit] can be managed… It is not necessarily fatal, but it is not attractive. (Patrick Honohan, Irish central bank governor)

Bloomberg echoed the statements, while Der Spiegel is running a cover that doesn't really need translating:

The macroeconomic issues with a Greek exit – a Grexit – would be immense. Paul Krugman lays out a convincing four-step guide as to how the whole thing could result in the end of the Eurozone, "and we’re talking about months, not years, for this to play out."

Krugman sees a Grexit leading to massive capital flight from Spain and Italy as savers race to move their deposits to Germany. That leads to either capital controls to prevent the exit, or massive (even in the context of those which have already happened) European Central Bank loans to stop the banking systems of those countries failing. Germany then has a choice. Either it becomes a guarantor for Spanish debt indefinitely, while also tolerating a higher level of Eurozone inflation than it has ever been willing to accept before; or the Eurozone breaks up.

Even the smaller issues with a Greek exit are hugely difficult to overcome, though. Currency swaps are normally done with huge levels of planning, and a long period of both currencies running in tandem to enable things like vending machines and electronic systems to switch over. But because the devaluing of a new Drachma would be so strong so quickly, Greece has no real chance to do this. If it decides to leave the Euro, it needs to get it over and done with in very little time.

Last September, Josh Hempton, a hedge fund manager, looked at the closest historical precedent for this high-speed currency swap: the break-up of the Austro-Hungarian Empire:

What they did was put troops on all the borders and made it illegal to take cash (or wire cash!) across borders. Then all Austro-Marks in each country was stamped - converted to Drachma for Greece, Marks for Germany, Peseta for Spain or whatever the currencies of the day were [If someone remembers the 1918 border splits better than me they are welcome to say...]

In this conception all Spanish debts become Peseta debts. All German debts become Mark debts. All Greek debts become Drachma debts. Unstamped currency goes worthless.

If you are going to split the currency I see no alternative to a big bang - and if you do that I see no alternative to troops at the border stopping transfers (and wire transfers) because shifting cash North looks so profitable against a sudden devaluation. Suddenly – and against all historic hope – its time again to guard the French-German (and every other European border) with troops for a week whilst the money is stamped.

Despite the fact that at every stage, the story of how the Eurozone will collapse is credible, there is a peculiar sense of optimism. As Joe Weisenthal writes, though, the thinking seems to be:

A crisis will be averted because to not avert it would be such a disaster. We'll see if that actually holds up.

The world looks to Greece right now Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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I believe only Yvette Cooper has the breadth of support to beat Jeremy Corbyn

All the recent polling suggests Andy Burnham is losing more votes than anyone else to Jeremy Corbyn, says Diana Johnson MP.

Tom Blenkinsop MP on the New Statesman website today says he is giving his second preference to Andy Burnham as he thinks that Andy has the best chance of beating Jeremy.

This is on the basis that if Yvette goes out first all her second preferences will swing behind Andy, whereas if Andy goes out first then his second preferences, due to the broad alliance he has created behind his campaign, will all or largely switch to the other male candidate, Jeremy.

Let's take a deep breath and try and think through what will be the effect of preferential voting in the Labour leadership.

First of all, it is very difficult to know how second preferences will switch. From my telephone canvassing there is some rather interesting voting going on, but I don't accept that Tom’s analysis is correct. I have certainly picked up growing support for Yvette in recent weeks.

In fact you can argue the reverse of Tom’s analysis is true – Andy has moved further away from the centre and, as a result, his pitch to those like Tom who are supporting Liz first is now narrower. As a result, Yvette is more likely to pick up those second preferences.

Stats from the Yvette For Labour team show Yvette picking up the majority of second preferences from all candidates – from the Progress wing supporting Liz to the softer left fans of Jeremy – and Andy's supporters too. Their figures show many undecideds opting for Yvette as their first preference, as well as others choosing to switch their first preference to Yvette from one of the other candidates. It's for this reason I still believe only Yvette has the breadth of support to beat Jeremy and then to go on to win in 2020.

It's interesting that Andy has not been willing to make it clear that second preferences should go to Yvette or Liz. Yvette has been very clear that she would encourage second preferences to be for Andy or Liz.

Having watched Andy on Sky's Murnaghan show this morning, he categorically states that Labour will not get beyond first base with the electorate at a general election if we are not economically credible and that fundamentally Jeremy's economic plans do not add up. So, I am unsure why Andy is so unwilling to be clear on second preferences.

All the recent polling suggests Andy is losing more votes than anyone else to Jeremy. He trails fourth in London – where a huge proportion of our electorate is based.

So I would urge Tom to reflect more widely on who is best placed to provide the strongest opposition to the Tories, appeal to the widest group of voters and reach out to the communities we need to win back. I believe that this has to be Yvette.

The Newsnight focus group a few days ago showed that Yvette is best placed to win back those former Labour voters we will need in 2020.

Labour will pay a massive price if we ignore this.

Diana Johnson is the Labour MP for Hull North.