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The Implications of a German Exit from the Eurozone

What changes to expect
Monday, September 24, 2012, 11:45 PM
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Executive Summary

  • Why the U.S. and the IMF won't act soon enough to avoid a German exit
  • Why Finland will bolt from the Eurozone the moment Germany does (and how many others may soon follow?)
  • What a German exit (and a new mark) would really mean
  • When will Germany likely announce its departure from the Eurozone?

If you have not yet read Part I, available free to all readers, please click here to read it first.

In Part I, we covered the background to what now appears to be inevitable: Germany has to leave the Eurozone. She, along with the Netherlands and Finland, simply cannot afford to bail out the rest of the Eurozone, so she is standing in the way of a resolution to the crisis. It is therefore only a matter of time before the political classes have to face this reality.

Time is running out, and the longer Germany delays, the worse her position will be. The yields on Spanish and Italian debt will inevitably head towards and through the 7% "point-of-no-return" threshold and beyond, and Germany will get all the blame. Germany will be seen as a thorn in the side of the ECB, restricting its scope for monetary action and obstructing a solution, partly because of the Bundesbank’s stubborn conservatism and partly because Germany’s Constitutional Court frowns on monetising government debt. She will be unfairly condemned by everyone.

Let’s look at some back-of-the-envelope figures...

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