Papandreou shatters the illusion

Greek Prime Minister George Papandreou’s extraordinary manoeuvrings last week forced euro-zone leaders to acknowledge openly for the first time that a country could leave the euro-zone. Indeed, preparations are reportedly being made for such a development. For now, the policymakers and the markets appear to think that Greece could leave in a relatively orderly manner, leaving the rest of the currency union intact. But rising bond yields and falling bank deposits in other would-be “leavers” could undermine that view over the coming weeks.