Germany prepares for Greek exit.

With the fear tactics having failed, evidenced by a still surging Syriza in Greece, Germany is digging in its heels over Eurobonds and is preparing for Greece to leave the Eurozone.

Neither Angela Merkel nor David Cameron’s stark warnings about Greece’s future, if it votes for the left leaning Alexis Tsipras and his demand for re-negotiation of Greek debt, appear to be swaying the Greeks. There was a period of several days where the warnings  appeared to have an impact, but polls have largely stabilized showing Syriza still maintaining a healthy lead.

Both EU leaders added their voices to the growing clamour that the next Greek elections will be a referendum on the EU. Greeks have consistently shown in polling that they favour remaining in the EU, but it appears that under the present remotely enforced Austerity and lack of direct control over their own destiny, that some prices might simply be too high.

The backdrop to the drama is detailed by Greece’s ongoing public finances, reported to have dropped again and now exceeding 1 billion Euros less than the comparative period last year. Greece’s finance ministry is giving the reason as political turmoil caused by the elections coupled to reduced economic activity. Unless the Hellenes expect us to believe the tax collectors have been fired, it simply serves to demonstrate Greece’s continuing downwards spiral.

As the EU was not so subtly lecturing on the consequences of Greeks voting for the “wrong party”, one that doesn’t support the Troika measure, the EU, ECB and IMF imposed austerity, Greeks themselves were seeing their country run out of medicine. They were witnessing pharmacists striking because they hadn’t been paid and they were being notified that they had a shortage of life sustaining drugs.

Publically all the main EU nations are stating they don’t want a divorce, they want Greece to remain. Everyone is acknowledging that for Greece to remain part of the EU it needs Austerity at least until 2020, if it leaves it could be back on its feet in two years.

The public face of the EU is therefore issuing warnings while making conciliatory noises, a rather contradictory stance very much akin to what we are seeing from Westminster in Scotland. What is of far more significance is what the principle actors are doing behind the scenes.

Der Spiegel reported it had information about a German government 6-point plan to encourage growth in Europe, under which crisis countries like Greece would receive tax concessions, on condition though that they reform their labour markets, like Germany did in the early days of the euro.

The plan involves creating special economic zones in the crisis-struck parts of the Eurozone. Foreign investors would be lured with tax incentives and more relaxed regulation. The crisis countries would be required to establish German-style privatisation agencies or privatisation funds to sell off, or part privatise, parts of the public sector. It might be a difficult sell as it involves creating additional inequities within the EZ.

Sueddeutsche Zeitung opened with front page news page that internally the Eurozone partners are very seriously preparing for a Greek exit, while externally wanting to create impression that Greece is staying.

Sueddeutsche and Bild appear to be working on news that’s leaking out, reporting the carefully coordinated contingency plan emerging at multiple levels which will enable commerce, industry and governments to assist Greece to leave the euro, although such a move shouldn’t be possible under EU law.

As examples the travel agency TUI is insisting on having a drachma clause in all its contracts, to protect it from financial loss should a currency switch take place while supermarket chain Metro is making plans to allow customers in its Greek shops to pay in Drachma. It's making preparations for pricing labels and cash machines to be changed.

Deutsche Telekom has sent experts to its Greek partner, OTE to help plan for a change from euro to drachma. German banks have reportedly written off all their junk Greek funds and investments so that a Greek exit will not affect them.

The European Central Bank is reportedly working out practical ways in which Euro notes could be switched, possibly by stamping them with a special magnetic stamp. The ECB also needs to work out what it does with the €40bn worth of Greek bonds it possesses. In the event of Greece going bankrupt, or leaving the Eurozone they could end up being worthless, and the UK will need to stump up on its portion of loan guarantees.

If the UK is required to underwrite the costs expect an additional drop in the value of sterling. That will increase the cost of all imports, and as the UK actually manufactures little these days that will be significant. This doesn’t allow for direct exposure to Greek debt, thankfully the UK is one of the lesser exposed nations here.

Ultimately the situation in Greece somewhat mirrors the situation in Scotland within the UK.

There are many who are ardent supporters of Union, but as time progresses if the true economic situation can be laid bare and the consequences be seen to be biting in Scotland, then even supporters of the Union will desert the cause in their droves. As this knowledge takes hold in Westminster we will see increasing levels of “contingency planning” for the “fait accompli”.

The only question really hanging over the future of the UK, like Greece, can it borrow enough in the short term, or can it do enough devaluation of Sterling [that quantitative easing of which the B of E is so fond] to keep the truth of current UK national finances from being self evident to all Scots in the short term. Judging by the IMF’s comments this week, it may be teetering on the edge.

If Westminster can achieve borrowing and resultant delay, there is a chance it may just squeak in the referendum, this time. The question will not end here, because it is already self evident it is not a fair and open campaign with Union scare tactics being granted full press and nationalist advances glossed over.

Should Westminster have any inkling that it may not be able to borrow sufficiently through the life of the referendum campaign, it would best serve all the inhabitants of these islands, and Europe in the wider context, to begin the preparations for an orderly dissolution now.

Ultimately what happens to Greece 2012 will be a bellwether of sorts for Scotland 2014. For good or bad it will have an impact. It just remains to be seen how large an impact.

To save Greece within the EZ and perhaps the EZ itself will take nothing less than a United States of Europe. For Greece there just isn’t time for that to be created. For the remainder of the EZ, it’s obviously quickly becoming a desire for weaker nations, it’s just as obviously becoming unpalatable for the stronger ones.