Greece leaving the EMU: From taboo to fashionable?

First it was the idea of eurozone bail-outs, then it was restructuring, now another eurozone taboo has been completely smashed: Greece leaving the Single Currency. In fact, over the past few days, it appears as if arguing in favour of Greece leaving the eurozone has become almost fashionable.

The speculation really kicked off when Der Spiegel revealed that a "crisis meeting" had been called in Luxembourg, following rumours that the Greek government was considering leaving the eurozone (although the main topic on the agenda for that meeting was probably restructuring and another bail-out package).

Despite the usual round of denials ("there's no meeting", "Greece is just fine", "Elvis is alive" etc) people are now falling over themselves to be candid. Greece's EU Commissioner, Maria Damanaki, for example. Becoming the first EU official to speak the unspeakable, she said,

The scenario of Greece's exit from the euro is now on the table, as are ways to
do this. Either we agree with our creditors on a programme of tough sacrifices
and results...or we return to the drachma. Everything else is of secondary
importance.

Clearly an attempt to put pressure on her countrymen to get on with business, but a bold statement nonetheless. And the last few days have seen a slew of politicians and commentators following suit. Writing in De Telegraaf, former Dutch Finance Minister Willem Vermeend argued that "Greece should leave the euro", given that it will never be able to pay back its debt.

In an interview with Handelsblatt, German FDP MP Frank Schaeffler - the standard bearer of the German no-bail out movement - said,

As long as Greece hasn't privatised a single cent worth of assets, increasing
the aid would be absolutely the wrong signal. At the same time governments must
help with an orderly eurozone exit.

(Schaeffler has been arguing this for a while, it should be said, in April 2010 - before the Greek bail-out was even agreed - he said that Greece should be prepared to "voluntarily leave the eurozone").

An increasing number of academics and commentators are now also suggesting that Greece should take a hike - be it temporarily or permanently. Harvard Economics Professor Martin Feldstein, for example, who this week argued,

A temporary leave of absence from the eurozone would allow Greece to
achieve a price-level decline relative to other eurozone countries, and would
make it easier to adjust the relative price level if Greek wages cannot be
limited.

In the WSJ, Editor of German weekly Die Zeit Josef Joffe wrote that,

Greece faces default no matter what it does, but only abandoning the euro
would give it a chance at growth.

And in today's FT, columnist John Plender chimes in,

If a package is agreed in June, which seems probable, the challenge will be to bring Greece to a primary budget surplus where revenue exceeds costs before interest payments. At that point, it would be sensible for Greece to bow out of the monetary union and take advantage of currency devaluation. For that to work, though, European banks would need in the interim to have bolstered their capital. And the execution risks are phenomenal. This is policymaking on a wing and a prayer.

And you know where we stand - the eurozone, in its current shape and form, is simply unsustainable (see here, here, here and here for example).