The Hotel CaliforniaThe Greece and Portugal saga reminds one of the lyrics in the song, Hotel California:

"You can checkout any time you like, But you can never leave…"

For time immortal, countries in Greece's condition fight the inevitable outcome for some months. They defend their currencies. Their domestic interest rates skyrocket. And then they cry "Uncle!" They devalue their currency and restructure their external debt. (And of course, the IMF shows up with an "austerity plan" too.)

The question is can Greece go down the well-worn path of devaluation and exit from the EMU?

There's a new legal analysis from the European Central Bank which says, in the well-turned phrase of international legal scholars: "Umm. We didn't put it in writing." The document clearly states the mechanism for expulsion. But it also says that they intentionally didn't establish a mechanism for voluntary withdrawl… but is it possible over the weekend?

For anyone short Euros based on this situation, the analysis in the ECB legal working paper of Dec. 2009, "Withdrawal and Expulsion from the EU and EMU: Some Reflections", is worth a read.

Ken Drees writes:

The PIGS could be put in a pen — two-tiered Euro currency — till they all get better and rejoin. Salute!


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