While Greek politicians go on with their vain negotiations over the formation of a coalition or unity or national salvation government, Europe is being prepared for a possible Euro exit of Greece. But amidst the speculation, the rumors and the dozens of articles no one seems aware of that exit’s consequences. Six professionals try to give an answer to that scary question in a BBC online article, under the title “Viewpoints: What if Greece exits euro?”
- Carsten Brzeski, senior economist, ING Belgium, predicts a totally chaotic aftermath. “Greek banks would go bust. Greek companies would go bust. Unemployment would go up. The new drachma loses lots of value. Food and energy prices go through the roof,” he explains. “It would be an explosive cocktail. The turmoil would weigh on growth. The outlook for the Eurozone would worsen,” Carsten Brzeski foresees.
- Greek Michael Arghyrou, senior economics lecturer, Cardiff Business School and contributor to the greekeconomistsforreform.com, explains that the new currency will be devaluated by 50%. The poor Greeks that took loans to build their houses or buy cars will see “the interest rates double and all mortgages, business loans and other borrowing become much more expensive,” and what is more “there will be no credit for Greek banks or the Greek state,” thus causing “a shortage of basic commodities, like oil or medicine or even foodstuffs.” Greek companies will completely lose their financial reliability and foreign firms will stop collaborating with them, predicts Arghyrou. The country would lose its “point of stability,” which according to the Greek economist was exclusively the common currency. In a political perspective, a possible default leads him to believe that “the country would end up in a volatile period. There would be institutional weakness.” And he concludes that “the worst case scenario would be a social and economic breakdown, perhaps even leading to a totalitarian regime.”
- Sony Kapoor, managing director of the Re-Define think tank, begins his viewpoint with a direct accusation against Greeks and Europeans, as he thinks that they are “talking about an exit in a casual blase way [and] are being highly, highly irresponsible.” He seems to believe that a Greek default would severely affect Ireland and Portugal and “undo all the good work” that’s been achieved there. “There would be a significant deposit flight in peripheral countries,” he continues, as Portuguese, for example, would try to find reliable banks abroad. And his ominous predictions ends as follows: “It would immediately weigh on investment in the real economy, because corporations would be very reluctant to invest anything at all.”
- Megan Greene, director of European economics at Roubini Global Economics, believes that “You would see cascading bank defaults in Greece and everybody would take money out of Portuguese and Spanish banks. A big part could be plugged by the European Central Bank (ECB) through a liquidity operation that would backstop the banks,” reminding that something like that has occurred in the past as well. “But that would not stem the political contagion or unrest,” he adds referring to the political upheaval all across Europe. “Greece is a small country and the rest of the Eurozone has been making provision for this for a long time now. The Eurozone could survive a Greek exit,” explains the economist who seems a little more optimistic that the pre-mentioned experts. He concludes warning that if Greece’s default is not the outcome of a coordinated policy, “an exit would be a worse option for Greece.”
- Jeremy Stretch, head of FOREX research, CIBC, foresees that “a new drachma would not be the most widely trading currency in the world and would probably drop in value by 50%.” He also refers to the positive impact of the whole debt crisis on the American Dollar. “The alternatives are few and far between for those who want to stand aside from the Euro,” he adds.
- Jan Randolph, head of sovereign risk, IHS Global Insight seems to have a third alternative to describe in his approach, as he believes Greece could go default without necessarily going back to its old currency. His scenario is as follows: “If credit is withdrawn by the EU and IMF, then Greece becomes a cash economy. It means the government can only pay what it collects. The government starts shutting down, 10-15% of state employees don’t get paid and unemployment surges from 20% to 30%. But Greece can still use the euro. It would be difficult for the ECB to keep banks afloat. The Greek banking sector would collapse as well. That would cause more unemployment, as credit for companies would dry up.” And he continues on a political, or better diplomatic level, saying “European nations would probably not accept another Western European country descending into chaos and collapse. The EU and IMF would probably negotiate some kind of aid. But Greece could continue with the euro.”