Greece’s inability to achieve austerity targets as required for further support has led to calls by some European politicians to withdraw Greece’s Eurozone membership. Earlier this week, German Chancellor Angela Merkel downplayed talk by prominent German officials calling for sanctions against Greece warning that should Greece leave the union, other countries would be forced to follow.
“If sovereigns in the Euro area believe that they are either too large or too interconnected to be allowed to fail, then there is a significant moral hazard problem,” David Mackie, an economist at J.P. Morgan, wrote in a note on Thursday.
“This has clearly been an issue with the ongoing under performance in Greece, and it became apparent in Italy in August regarding ECB bond purchases. But the music for this dance may be about to stop. The departure of the troika from Athens last week suggests a high level of frustration about what Greece is delivering, and there are now serious doubts about the disbursement of the sixth tranche of the original bailout package.”
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