And if the Greek bailout fails...

Teri Schultz, CNN blog, 28.06.2011

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What happens if the Greek parliament rejects new budget cuts, deep-sixing its financial aid from the European Union?

“You can't let anyone believe there is a Plan B,” said Euro Group chief Jean-Claude Juncker, the prime minister of Luxembourg who heads up meetings of the 17 countries using the common currency. “And there isn’t a Plan B,” he insisted after EU heads of state gathered in Brussels last week, for a summit focused on the Greek crisis. [...]

But with so much at stake ― by the most dire assessments, the existence of the common currency or even the bloc itself ― it’s inconceivable that policymakers aren’t looking ahead.

So is Brussels bluffing?

Janis Emmanouilidis, a senior analyst at the European Policy Center, says some of this is semantic. Though EU officials and European leaders have stuck admirably to the script of “no Plan B,” some going so far as to add “nor C or D,” Emmanouilidis says “in any case, you have to prepare yourself for what will happen in the markets.”

He believes the EU needs a Plan B for itself, regardless of what happens in Greece this week.

“In an ideal world,” he recommends, the EU should make a wish list of reforms that would include the “introduction of euro bonds, the creation of a European finance ministry, the harmonization of policies in areas such as taxation or social policy [and] a substantial increase in the EU budget.” This would lead to the “creation of an economic and political union with a state-like quality able not only to solve the euro crisis but also to achieve the strategic objective of a global Europe capable of playing a key role in determining international political and economic developments in a highly dynamic global environment.” [...]

Emmanouilidis said the only mechanism that exists, as yet untested, would be for Greece to leave the entire EU, a scenario provided for in the bloc’s governing treaty. But he doesn’t think that’s realistic.

“There would be thousands of questions that would need to be answered of what needed to be done in order to get out” of the euro zone, Emmanouilidis said. “So beyond the legal, there are the practical questions which will be difficult to solve … you would need both sides to be very eager to accept thousands of compromises.” [...]

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