(Money Watch) COMMENTARY The European Union is denying that it is working on a Greek exit plan, contradicting comments by one of its trade commissioners. Attempting to deny such a prudent action is like trying to teach a pig to sing: All it does is waste your time and irritate the pig.
The denial was issued hours after Karel De Gucht told a Belgian newspaper, "De Standaard," that officials are working on an emergency scenario in case Greece has to stop using the euro.
A year and a half ago there may have been the danger of a domino effect. But today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn't make it. A Greek exit does not mean the end of the Euro, as some claim.
EU leaders may think admitting this will encourage instability by promoting the idea that Greece's exit is already a done deal. However, denying it comes with its own costs. There are only two possible reactions to this denial: Either it's a lie or the folks in charge of the EU are all idiots.
If the denial is true then someone is guilty of gross dereliction of duty. Not planning for such an obviously possible scenario means that any response to it would be ad hoc, uncoordinated and likely to make an already bad situation even worse.
Reuters confirmed De Gucht's remarks via a "source close to the commissioner," which is news speak for "the commissioner doesn't want to get in any more trouble than he already is but stands by his comments." This same source explained "EU institutions had not been sitting on their hands for the past two years, and that they were now better prepared than they had been."
It is clear that not only have the EU and ECB leaders been planning for this, they've already taken actions around it. The ECB has taken on a huge amount of debt from Greece in order to lessen the private sector impact of a Greek default. Whether or not this was a smart action is open to debate. All it does is move the responsibility for the debt to the taxpayers, just as the U.S. did during the bank bailout.
If the EU really wanted to reassure investors it should have simply said, "We are planning for all contingencies in order to lessen any possible damage." Instead we got, "Who are you going to believe, me or your lying eyes?"