Yesterday, John Taylor and I testified on the Greece crisis before the Senate Foreign Relations Subcommittee on Europe and Regional Security Cooperation. A summary of my testimony is here (including a link to my written statement), and the full video of our discussion is here. I continue to see Grexit as the most likely outcome, as we are at the very early stage of a complex adjustment effort that will face serious economic and political headwinds in Greece, and will be extraordinarily difficult to sustain. But whether Greece is ultimately better off in or out of the euro, a competitive and growing Greece is an objective the United States shares with our European partners.
This is how Grexit happens. Following the collapse of negotiations between Greece and its creditors, the European Central Bank (ECB) has halted emergency liquidity assistance. Facing an intensified bank run, the Greek government on Sunday introduced banking controls and declared a bank holiday. With substantial wage and benefit payments due this week and local banks out of cash, economic conditions are likely to deteriorate quickly in Greece ahead of a planned referendum for July 5 asking Greek voters whether the government should accept a creditor-backed reform plan.