Not So Bad, In Fact

A bleak week for the euro - or the week in which the political leadership of the Eurozone finally came to terms with harsh reality and faced up to the fact that its grand monetary union project cannot survive in its present form? The last few days have been full of drama. Nobody can say for certain where events will go next, but my money is, as it has been for some time, on the second interpretation.

It may take a few months before it comes to pass, but we have passed the point where Greece can credibly stay in the euro, even if it wants to - and passed the point also where the rest of Europe can afford to go on indulging its southern neighbour. There are bigger problem countries to rescue, and using all its firepower to try and save the weakest link has become an expensive folly. Mr Papandreou, it may well turn out, has inadvertently saved the rest of Europe from a much worse fate.

By extension, therefore, the current stalemate is potentially a good outcome both for the Eurozone and those whose economies - including the UK and US, who depend on its continued health. It is certainly good news for investors in the long run. Of course the risk of financial contagion remains. Many of Europe's banks are undercapitalised and cannot easily afford to write off their (foolish) exposure to Greek debt. But that problem is one that can be solved with positive remedial action: keeping the Eurozone intact in its present form cannot.

It is worth bearing in mind that leaders of all the main economies have their own agendas; what worries most of them is the short term trouble that a disorderly default by Greece, or a wider fragmentation of the Eurozone, will cause in their own backyard. It is hard to see how any of them will avoid paying a price in the polls for a second period of serious economic dislocation, like the one that followed the collapse of Lehmans in 2008. The longer term benefits for the world economy and for investors are not such high priorities. Yet the hard truth is that investors should applaud anything that halts the Eurozone juggernaut before it runs the world economy into the ground.