If Greece left the Eurozone, I expect this would be bad for Greece with a hike in inflation, unemployment, panic and social unrest likely.
There are some powerful factions within the Greek political system who are clearly anti the austerity measures imposed. I, as we all, can sympathise to some extent with the plight but there is a limitation as the problem is partly home-grown – where other countries made cut backs and tough decisions in the last decade these where not in Greece.
If Greece can’t satisfy the demands of the European Union and the IMF, then they will cut off Greece’s last remaining lines of credit. Without this, Greece will not be able to pay its bills and could drop out of the euro altogether.
Who should pay for these mistakes? Is there an answer? We can’t change the past and can only deal with the current and plan for the future.
So what is opinion on this :-
Carsten Brzeski, senior economist, ING Belgium
- Chaos.
- Greek banks vulnerable from collapse (lack of support if problems arise)
- Greek companies vulnerable from collapse (lack of support if problems arise)
- Unemployment would spike
- Expect the new drachma would drop drastically in value
- Food and energy prices would leap (poor exchange rates worsen the situation)
- The turmoil would undermine any opportunity for growth
- The outlook for the Eurozone would worsen.
Michael Arghyrou, senior economics lecturer, Cardiff Business School
- The drachma would be devalued (at least 50%), causing inflation
- Interest rates will double and all mortgages, business loans and other borrowing will become much more expensive.
- There will be no credit for Greek banks or the Greek state.
- Expected shortage of basic commodities, like oil or medicine or even foodstuffs.
- A lot of Greek firms rely on foreign suppliers, who may cut off Greek customers.
- Greek companies could be driven out of business.
- Greece will lose its only reference point of stability, which was its euro status.
- The country would end up in a volatile period.
- There would be institutional weakness.
- 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
- Greeks or European policy makers talking about an exit in a casual blase way are being highly, highly irresponsible.
- Total cost versus the total benefit remains overwhelmingly negative, both for the Eurozone and Greece.
- A Greek exit could undo a large part of good work in Ireland and Portugal.
- If you are a Portuguese saver with money in the bank, even if there is a small likelihood of losing that money, it would make perfect sense to move euro deposits while you can to a safer haven, like the Netherlands and Germany.
- There would be a significant deposit flight in peripheral countries.
- 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
- Cascading bank defaults in Greece would be expected
- 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. The ECB has already done that several times and it would step up to the plate again.
- Political contagion or unrest.
- 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.
- The exit could be better for everyone involved if managed in a co-ordinated orderly way.
- If a unilateral default, an exit would be a worse option for Greece.
Jan Randolph, head of sovereign risk, IHS Global Insight
- 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.
- More unemployment, as credit for companies would dry up.
- What happens next is a political question.
- 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.
- Greece could continue with the euro.
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