Emerging from his gloomy Bear’s Lair, Martin Hutchinson takes a swipe at Greece (“failed to live up to even the modest Balkan standards of competence and integrity”), and then starts gnawing at the Economist’s scary assessment of the direct costs of a Grexit (Greek exit from the euro).

Above all, this caught my eye:

However, the most serious overstatement of the cost of a Grexit – and the other potential exits – is the likely Greek default on 100 billion euros of Target 2 payment system obligations to the Deutsche Bundesbank and other “surplus” central banks. As discussed in an earlier column, these obligations should have never been allowed to arise. They came about because the eurozone payments system routed euro payments between Greece and Germany through their respective central banks. That’s not entirely unprecedented; payments from Alabama to New York go through the respective Federal Reserve Banks when the two banks concerned don’t have a correspondent relationship. However in the U.S. system and when payments are being made between individual banks, the imbalances are not allowed to build up, but are settled on a periodic basis. The Bank of Greece should have been forced to settle accounts quarterly with the Bundesbank – which would have drained the Greek economy of funds years ago, raised Greek interest rates and prevented the country’s debts spiraling to the extent they did.
The reality now however is the Target 2 balances are worthless, whether or not Greece remains a member of the eurozone. Given Greece’s indebtedness, and the deflation necessary in the Greek economy, it is unimaginable that a Greece that remained a member of the Eurozone could find an additional 100 billion euros, over and above its existing debt, in any finite timeframe. That 100 billion euros is thus not a cost of Grexit, it is a cost that the Bundesbank and the other surplus countries must bear whatever the fate of the euro.
The same applies to the gigantic “Target 2” balances between Germany and Italy, Spain and probably France; they are all illusory. Probably two thirds of Germany’s 727 billion euros ($850 billion) of Target 2 claims at July 31, 2012 will never be seen again, and will have to be borne by German taxpayers, euro or no euro…

And were German taxpayers asked if they wanted to take this sort of risk? Well, what do you think? The euro is as much of an insult to democracy as it is to economics.

The rest of the piece is well-worth reading, particularly on the prospects for France. Martin concludes by pondering the creation of two euros, “Iberian,” and a variant of our old friend, Northern. France and Italy go their own way, and Greece (and possibly Cyprus) are consigned to “sub-Balkan disgrace.”

Provocative!