Euro Area

[phonicsmonkey]

neither the populace nor the national Parliaments will wear it.

You may be right about that - if so it will constitute a failure of political leadership at least as bad as the one which has gotten us here in the first place.

What EVERYONE needs to consider is how to get on after Greece defaults and exits the Euro

Move all your investments to cash and prepare for a severe and prolonged global recession. It really is going to be that bad.

once they have done that a loan to help rebuld their economy might be an idea worth considering

Versus lending money to Greece now to prevent global economic armageddon? I fail to see why that is a preferable option.

If we had allowed Greece to default in reality and then required them to actually collect their own taxes, after which providing money for recovery, we would be in a much better place than we are now.

I agree that Greece should be required to fundamentally restructure its tax system in order to ensure government revenues are on a firm footing in future. One suggestion for how to do this is in the Guardian article I posted. But I think allowing Greece to default on its debts rather than stumping up the first set of bailout funds would have been as disastrous as letting it happen now, for all the reasons I have outlined above.

(EDIT: I should add that suddenly and sharply raising (or starting to collect) taxes while at the same time cutting government spending is not exactly the recipe for growth! And it's growth that Greece needs in order to service its debts.)

I don't think you fully appreciate the integral part the European banking system plays in international trade. Literally the only thing keeping the world economy in positive growth at the moment is trade between the developing and developed countries. This is largely financed by the lending of European banks.

These banks are currently holding a vast amount of European sovereign debt. Greek, Portuguese, Irish etc. Capital reserve requirements only require the banks to hold a certain amount of equity (read: cash) against these loans at present. Call it 25%, I'm not sure of the exact figure since Basel 2. This means they have to reserve 25% of the value of the loan as un-used capital. the other 75% can be used to capitalise other loans, for example trade finance and loans to businesses in Europe.

If the Euro sovereign loans go into default they are required to hold closer to 90% of capital against them. This will significantly impact their ability to make further loans. And the sovereign debt that was not Greek will drop dramatically in value, further impairing their balance sheets (or it would do if they were required to mark those loans to market). The short-term shock of all this will drive several banks into bankruptcy. Banks will be unwilling to lend to one another again for fear of counterparty risk and therefore unable to lend to non-banks.

Kiss goodbye to global growth in that scenario.

I can't imagine how anyone except the most extreme anarchist would welcome that chain of events or deliberately choose them.