Greece staying in the euro may cause all kinds of trouble

Outlook The continuing stand-off between Greece, its lenders and the EU is reminiscent of what used to happen regularly in Northern Ireland (and still does occasionally). Both sides engage in games of brinkmanship, with talk of red lines and final offers being traded back and forth. The financial media (which, like any part of the media, just loves conflict) gets into a tizzy.

The markets wobble a bit. Both sides shout at each other, walk into discussions, walk out, walk back in again. As the deadline nears those last, final, never-to-be-changed, cross-our-hearts-and-hope-to-die negotiating positions end up getting changed after all. As a result, a deal of some sort is ultimately cobbled together to keep the show on the road and both sides claim to have emerged as winners.

As my colleague Hamish McRae has pointed out, increasingly volatile bond markets are pricing in a technical Greek default, even if a way can be found to avoid an actual default. A trader of my acquaintance pointed out that, far from fretting about a Greek withdrawal from the eurozone, the real question is how much trouble Greece can cause even if it stays in the euro. But, of course, if it doesn’t get bailout funds and Greek banks cannot access liquidity offered by the European Central Bank, there is no economic benefit to it doing so.