ECB prepares legal ground for euro rupture as Greek crisis escalates

[FarCenter]

http://www.telegraph.co.uk/finance/comment/7012297/ECB-prepares-legal-ground-for-euro-rupture-as-Greek-crisis-escalates.html

Fears of a euro break-up have reached the point where the European Central Bank feels compelled to issue a legal analysis of what would happen if a country tried to leave monetary union.

By Ambrose Evans-Pritchard
Published: 5:12PM GMT 17 Jan 2010

“Recent developments have, perhaps, increased the risk of secession (however modestly), as well as the urgency of addressing it as a possible scenario,” said the document, entitled Withdrawal and expulsion from the EU and EMU: some reflections.

The author makes a string of vaulting, Jesuitical, and mischievous claims, as EU lawyers often do. Half a century of ever-closer union has created a “new legal order” that transcends a “largely obsolete concept of sovereignty” and imposes a “permanent limitation” on the states’ rights.

ECB cuts rates to record 1.5pc, mulls radical actionThose who suspect that European Court has the power pretensions of the Medieval Papacy will find plenty to validate their fears in this astonishing text.

Crucially, he argues that eurozone exit entails expulsion from the European Union as well. All EU members must take part in EMU (except Britain and Denmark, with opt-outs).

This is a warning shot for Greece, Portugal, Ireland and Spain. If they fail to marshal public support for draconian austerity, they risk being cast into Icelandic oblivion. Or for Greece, back into the clammy embrace of Asia Minor.

ECB chief Jean-Claude Trichet upped the ante, warning that the bank would not bend its collateral rules to support Greek debt. “No state can expect any special treatment,” he said. He might as well daub a death’s cross on the door of Greece’s debt management office.

This euro-brinkmanship must be unnerving for the Hellenic Socialists (PASOK). Last week’s €1.6bn (£1.4bn) auction of Greek debt did not go well. The interest rate on six-month notes rose to 1.38pc, compared to 0.59pc a month ago. The yield on 10-year bonds has touched 6pc, the spreads ballooning to 270 basis points above German Bunds.

Greece cannot afford such a premium for long. The country must raise €54bn this year – front-loaded in the first half. Unless the spreads fall sharply, the deficit cannot be cut from 12.7pc of GDP to 3pc of GDP within three years. As Moody’s put it, Greece (and Portugal) faces the risk of “slow death” from rising interest costs.

<SNIP>

Greece alone in Western Europe treats the military budget as a state secret. Rating agencies guess it is a ruinous 5pc of GDP. Does the country really need 1,700 battle tanks, 420 combat jets, and eight submarines? To fight NATO ally Turkey? Merely to pose the question is to enter dangerous waters.

<SNIP>

[vadawg]

1. pretty much i would say that greece has a real fear of turkey and not without reason

there is a palpablae hatred between both nations that goes way back and is still remembered...

[roamer65]

2. Sounds like the beginning of a major currency crisis.

[Odin2005]

3. The Telegraph is a right-wing, anti-EU rag.

Take it's articles about the EU and the Euro with a bunch of salt.

[vadawg]

4. dosent mean they are not right though, the EU has both its lovers and its detractors

throughout europe, there is still a huge nationilist feeling throughout the people of europe who dont like being ruled from the confines of Strasbourg etc...

[izquierdista]

5. What says The Guardian?

I've yet to read a steaming pile from them.