Banking Union and Greece: a European firewall

Europe can now afford to let Greece collapse and exit the euro. Although this is not the scenario anyone would prefer, it is now not only thinkable but feasible and an active part of strategic thinking in European capitals. Greece's most recent elections demonstrate further unwillingness to take further measures to cut spending, raise taxes and restructure the economy, and even the German Chancellory doesn't rule out the possibility. Preparing this next phase of the euro zone crisis has been made possible by selective construction of banking union--the ECB supervises the biggest EU banks, but national supervisors are responsible for the rest, and they can and do insist that all banks reduce their exposure to foreign investments. Balance sheets have been renationalized. National authorities also remain responsible for dealing with insolvent banks, whether bailing them out, insuring deposits or outright closing them down, some moves to coordinate at the Europeaan level for the biggest banks. The resources of the European Stability Mechanism, a kind of European IMF, are in place for Europe's creditor states to prevent one country's collapse from spreading throughout the euro zone.

Neither side, Europe nor Greece, actually prefers a Grexit. But in this year of political chicken, Europe has the tools to blink last and to use a Greek failure as an example to any others.