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Leading article: Talk of Greece leaving the euro is reckless

The Greek premier has resisted calls for his resignation. He should heed them

Friday 04 November 2011 01:00 GMT

It is a measure of the recklessness of the Greek Prime Minister's referendum gamble that his government's descent into disarray yesterday should be so welcome. That the outcome was the swift withdrawal of George Papandreou's ill-judged plan for a plebiscite on the latest eurozone bailout plan is a matter of considerable relief. And the tentative moves to establish a transitional coalition government in Athens are even more so.

With financial markets see-sawing and Italy's borrowing costs soaring to dangerously high levels, it can only be hoped that yesterday's developments draw a line under the latest bout of instability to rock the eurozone. Even so, the verdict on Mr Papandreou is unforgiving. Not only did his referendum bombshell display an unconscionable blindness to knock-on effects beyond his borders. If, as Mr Papandreou claims, the goal was to ensure a sufficient mandate for the policies agreed in Brussels, he should have called a general election. It is some comfort that his refusal may yet be overtaken by events.

Despite yesterday's volte face, Mr Papandreou was last night resisting calls for his resignation. He should heed them. Not only does this week's debacle prove he is not up to the job that Greece, Europe, and the world, require of him. At a practical level, it undermines his credibility in future negotiations. Relations with his eurozone colleagues, most particularly Angela Merkel and Nicolas Sarkozy, have been materially damaged. Perhaps as important, he has lost the trust of the markets. The most promising development now would be the loss of today's vote of confidence in Athens, clearing the way for a government of national unity, under new leadership, backed by the broad political consensus so badly needed.

But even Mr Papandreou's resignation cannot lay to rest his most telling legacy: the flippancy with which Greece's potential abandonment of the euro is now discussed.

On Wednesday night, the possibility was mentioned by the German and French leaders for the first time, as they ruled out any re-negotiationof terms and warned Mr Papandreou that a referendum would have to be on Greece's membership of the single currency. Their candour may be refreshing. It may even have helped force the Greek premier's hand. But it also adds to the growing sense that a Greek exit is a viable option, to be considered alongside all the other ways that the crisis might play out.

Such a conclusion is profoundly dangerous. It is not that the case in favour cannot be compellingly made. In purely economic terms, a carefully-managed exit, rapid currency devaluation and judiciously managed reforms – helped along by a flood of international money as the country's assets collapse in price – could see short-term turmoil turn into convincing economic resurrection within just a few years. So, at least, the oft-quoted experience of Argentina suggests.

But such arguments gloss over the immense political and economic costs both to the EU and the wider world. Whether the massive defaults on Greek debt could be absorbed by Europe's banks, or prevented from triggering a global financial meltdown akin to that following the collapse of Lehman Brothers, is debatable. Whether the combined might of the German economy and the European Central Bank could be marshalled in time to halt contagion to Italy and beyond is also doubtful. The effect on global financial confidence would be ruinous, the effect on European political and economic unity more catastrophic still.

Amid all the confusion, what is clear is that the efforts to solve the eurozone's problems are far from over. Now is not the time for careless talk about Greece's exit. It is time for concerted efforts to find a solution. The alternatives are immeasurably worse.

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