The Greek conundrum will be resolved either by a messy deal or an exit from the euro.
A week has passed since the Greek general election result and we still don’t know whether the new government is going to be able to do a deal with the euro-zone authorities.
There are contrary indicators. Every so often a Greek government spokesperson suggests that Greece is not asking for the moon, while a euro-zone spokesman indicates that there is room for flexibility.
Then another Greek voice appears to be calling for the moon – with menaces – while someone from the euro-zone helpfully reaffirms the absolute and inviolable sanctity of debt. Something – and someone – has got to give. Accordingly, we have to be prepared for either a messy deal or a messy exit from the euro.
Even if the Greek government were to be granted complete debt forgiveness and an end to austerity, if Greece stayed in the euro, this would only solve half the problem. For it is still hugely uncompetitive, which is a good part of the explanation for the 25pc drop in its GDP.
If negotiations between the two sides break down, and Greece reneges on its debt, it might try to stay in the euro, but it would not succeed. In these circumstances, the ECB would surely refuse to support the Bank of Greece.