Greece would not be the only loser from a messy divorce

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With their relationship having soured from a joyful marriage to a testy – and often frosty – cohabitation, Greece and the eurozone are heading for a divorce. In the absence of some miracle reconciliation, their joint prospects include five of the “conventional wisdoms” of such a step, along with an unusual one.
First, should they end up divorced, which is increasingly likely, both parties would be financially worse off, at least initially. Under a potential “Grexit”, Greece would lose access to a range of European financial windows, most importantly direct funding from the European Central Bank and through the central bank’s emergency liquidity assistance programme.
On their side, European countries and their regional institutions, including the ECB, would have no choice but to take a loss on account of a severe writedown of their claims on Greece.
Second, the “kids” are most at risk and would need to be protected. Having already suffered from economic depression and financial turmoil that almost five years of testy cohabitation could not solve, Greek citizens would now experience another major dislocation. Disruptions would also be felt initially by citizens elsewhere in the eurozone, particularly through higher borrowing costs in peripheral countries such as Cyprus, Ireland, Italy, Portugal and Spain; but this impact would be less severe and not as prolonged.
Third, the friends of both sides would be torn by their allegiances. This would certainly be the case in the peripheral economies. A segment there would sympathise with Greece and its long-suffering citizens. But the bigger part would consist of those feeling that, having themselves had to swallow bitter medicine to stay in their eurozone marriage, it would be best to keep a distance from Greece and to align themselves with the hawkish members of the single currency’s core.
Fourth, such realignments would be part of a nasty and very public blame game. Those surprised by the bitterness of the Greek-eurozone interactions so far would probably be shocked by what would follow if there was indeed a divorce. Many details of mishandled negotiations, broken promises and bungled opportunities would merge. And neither side (including their leaders) would come out well in the inevitable subsequent spectacle and public scrutiny that would follow.
Fifth, even after a divorce, the two parties would have no choice but to stay connected in ways that would need to be managed carefully for the benefit of both. Given its location and trade links, Greece would need to work with Europe to find a way to remain a member of the broader European Union (as opposed to the eurozone) or, at the minimum, establish some sort of “association agreement” with it. This would also be in the interests of its European partners, if only to counter potential collateral damage from a geopolitical perspective, including a closer association between Greece and Russia.
Finally, and less conventional, the intermediaries of this sorry divorce are unlikely to do well out of it. This is particularly the case for an IMF that has sought to be an honest broker and financially supportive in the context of enormous political pressure and shifting alliances. Unlike family lawyers, who typically do very well for themselves when marriages fall messily apart, the IMF would find there was an adverse impact on its own balance sheet — constraining its willingness to play such a role again so liberally should other members of the eurozone slip from joyful marriage into testy cohabitation.

Source:
Mohamed El-Erian 
 ft.com