ECB Policy Makers Forced to Deal With Possibility of Grexit

By Todd Buell 

        FRANKFURT--The European Central Bank has insisted since the beginning of the Greek crisis that membership of the currency bloc is irreversible. But recently a change of mood has become palpable among policy makers.
        They are beginning to become resigned to the real possibility that Greece--more than five years after getting its first bailout--may have to leave the currency bloc, and are speaking openly about the tools the ECB has to manage such an emergency.
        Even ECB President Mario Draghi has conceded that there is no certainty that Greece and its creditors can reach a deal on a third bailout. "I don't know, this time it is really difficult," Mr. Draghi said, according to Italian newspaper Il Sole 24 Ore. His comments carry a clear, if unspoken, message: Failure to reach a deal in the coming days could herald Greece's exit from the eurozone.
        One of Mr. Draghi's colleagues, Ardo Hansson, was even more explicit in an interview with a local newspaper in Estonia. "We have been forced to deal with this possibility [that Greece will leave the eurozone] more and more as the probability of such scenario has unfortunately increased over time."
        But the tools are there to deal with the fallout, he said. "Opportunities to deal with this scenario have been created: We have a wide variety of nonstandard monetary policy measures at our disposal and work closely together with other central banks. When such need should present itself, we are ready to implement these measures." The Greek situation "is not hopeless, but it is worsening fast and abruptly," he said.
        The rhetoric is markedly different from earlier this year. Back in April at meetings of the International Monetary Fund, Mr. Draghi said he stood by a statement that he made in August 2012 that the euro "cannot be reversed."
        Even though legally speaking a country can't be forced out of the currency bloc, it could happen if Greece fails to agree a new bailout in time to repay the ECB on July 20 for holdings of Greek government bonds that the ECB bought in previous bond-purchase program. If Greece defaults, the ECB is expected to pull the plug on support for Greek banks. This would likely force Greece to institute some sort of new currency to keep its banks going.
        The other key date is Sunday when EU leaders gather in Brussels for an emergency summit. Greece submitted an application to the eurozone's bailout fund on Wednesday.
        If recent comments from central bankers are to be believed, they want markets to know that not only do they now see a so-called Grexit as a real possibility, more importantly, they are prepared.
        Liis Kangsepp in Tallinn contributed to this article
        Write to Todd Buell at todd.buell@wsj.com
        (END) Dow Jones Newswires
        July 09, 2015 06:18 ET (10:18 GMT)

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