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Taboo eases on talk of Greek euro zone exit

The greek flag fluttering through a banner on the top of the parliament in Athens on June 30, 2011.


Dismissed as foolish fantasy a year ago, the prospect of Greece leaving the euro zone has become a topic worthy of serious discussion among experts handling the crisis in recent weeks.

In public, the official line remains that no member will exit the single currency bloc, but policy makers are at least willing to exchange views on an intellectual level.

Is thinking the unthinkable a first step toward carrying it out? It would not be the first time euro zone officials have put the impossible into action.

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In bailing out Greece, Ireland and Portugal, the bloc has already broken its rule that member states cannot assume the liabilities of others - the supposed "no bailout" clause.

One of the senior euro zone officials involved in crafting the rescue packages, who is leaving Brussels after several years, was asked to write an assessment for their government of the crisis with a view on where the situation was headed in the coming years.

Wondering whether there would still be 17 members of the single currency by the end of the decade, the official opined in the report, the contents of which were related to Reuters:

"There may well still be 17 members, but whether it will be the same 17 members is an open question."

Among non euro-zone member states - which include Britain, Sweden and Denmark - senior Brussels-based officials express relief at not having joined the club and often privately discuss the once-unthinkable possibility of a state dropping out.

The euro project is at best faltering, but it is unclear whether the sovereign debt crisis will bring it to an end or whether it will emerge from a difficult teenage phase.

The 1992 Maastricht Treaty, which laid out the goal of establishing economic and monetary union, resolved to converge as well as strengthen the EU's economies. A levelling-out of wealth and prices across the region was a long-term aim.

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Critics, and the evidence, suggest that has been a failure.

In 2010, prices for consumer goods and services were more than 20 per cent above the EU average in Finland and some 30 per cent below in fellow euro zone member Slovakia.

Income inequality has also increased, although not shot up, in the past decade, with the richest 20 per cent in the euro zone now earning five times more than the poorest 20 per cent.

While few actually expect a country to abandon the single currency, the chances of it happening have substantially increased since the crisis began in late 2009, with a growing consensus that Greece will prove unable to pay its bills.

It could default and stay within the euro zone, but it is unlikely to achieve the necessary improvement of its competitive position without devaluing, by exiting the single currency.

Emergency aid may take the form of loans, not hand-outs, but many economists believe a Greek default is inevitable and that its bailout, set to be doubled, is only buying time.

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