The EU’s Secret Plan for a Catastrophic Grexit
A new book, The Last Bluff, reports on official preparations for the disaster that almost was.
The top-secret plan had been filed away in 2012, the previous time Greece had teetered on the edge of default. It was code-named “Croatia’s Accession to the European Union” to disguise that it was a doomsday scenario for the country farther south. Any hint it even existed would have sent Greece deeper into crisis, spooked financial markets, and shaken confidence in the euro itself. Then in early June 2015 a fresh round of default negotiations seemed to be at an impasse. Not till negotiations ended on July 13, 2015, did the EU and Greece agree to a third bailout. In the meantime, the EU’s preparations for catastrophe continued, as detailed in this excerpt adapted from Viktoria Dendrinou and Eleni Varvitsioti’s book, The Last Bluff.
A small team of 10 EU economists and lawyers huddled on the 15th floor of the Charlemagne building, the European Commission’s economic headquarters in Brussels, and dusted off the old Plan B in case negotiations failed and Greece defaulted. The reasons for secrecy remained the same as 2012. But the plan had to be renamed because Croatia had since joined the EU. Thus, the 157-page “Albania Contingency Analysis & Plan, Sovereign Default 2015” was all about what to do to minimize the economic and humanitarian catastrophe should Greece be forced out of the EU and the euro zone.
The second chapter, Managing Exit, looked at the stark costs of a Grexit. At that point, Greece owed €342 billion ($387 billion in current dollars) to the European Financial Stability Facility, the European Central Bank, the European Investment Bank, and other euro zone governments and banks. A table calculated in detail each euro zone country’s exposure. In the case of Italy, that amounted to €63 billion, or 4.1% of its gross domestic product. For Germany, the sum was far greater. At €92.8 billion, or 3.4% of its GDP, the sum was the highest in absolute terms. But Slovenia had the biggest exposure as a percentage of its economy—at €1.7 billion, it amounted to 6.7% of its GDP.