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How Greece could leave the eurozone – in five difficult steps May 13, 2012

Posted by proeconomia in Fiscal policy, Main, Monetary policy, News on Greece, On the crisis, Opinion.

From the Guardian/The Observer this one. Here are some predictions (ain’t mine, so don’t blame me!) but do read the whole piece:

  1. The fallout from a Greek exit would quickly wipe 20% off Greece’s GDP, send inflation soaring to 40%-50%, and see Greece’s debt-to-GDP ratio soaring over 200%, say analysts at French bank BNP Paribas. Such predictions are obviously estimates – the actual outcome would depend on how large a devaluation Greece would take if it reverted to the drachma. Dawn Holland at UK thinktank the National Institute of Economic and Social Research expects a 50% fall in the value of the currency. By comparison, the Argentinian peso lost 70% in value after the country’s bankruptcy a decade ago.
  2. To counteract a run on its banks after a debt default, a new Greek government would have to freeze bank accounts and introduce capital controls to prevent the country’s citizens from moving money abroad. But analysts at Fathom Consulting believe Greeks would be “likely to conclude that the space under their mattress would be safer than the vault of a Greek bank”, making a series of bank runs a strong possibility.
  3. It is not inconceivable that Greece might already be quietly printing new money: when Slovakia broke away from Czechoslovakia in 1993, it emerged that it had started printing its own currency six months earlier. The money was stored in a warehouse in London and shipped to the newly created country once the breakup became official. To minimise the likely chaos that would ensue, the Greek government would probably choose to reintroduce the drachma over a weekend. <– SEE THIS (and note I already asked the question of the brain drain in the previous post, in #4)
  4. The Argentinian example shows that a Greek debt default and exit from the eurozone are likely to have dire economic and social consequences, at least in the short term. The country will become isolated. With lending drying up and accounts frozen, small businesses will go bust, exports plunge and the country will lurch deeper into recession. “Consumption could drop by 30%,” says Nordvig. “There will be some pretty extreme effects.”
  5. The depreciation of the new currency will make imported goods more expensive and drive up inflation. Mass unemployment is likely, as is an exodus of young skilled workers. If tens of thousands of Greeks headed to the borders, they might even be closed. Greek soldiers patrolling the roads and ports to keep their fellow citizens in? It is not impossible.<– SEE THIS
  6. The examples of Iceland and Argentina, where recovery has been impressive, offer some hope, though – although Argentina’s default took place at a time when the global economy was on the up.

So, not only would we have to bear the unbearable without even having chosen to but we will be incarcerated in our own country with closed borders??? Gime a break, this is madness not a European country! Maybe some of you readers should start reacting to what you read? Thank you!



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