What Would Happen In Case Of Grexit?
What would happen in case of Grexit?
In order to “help” Greece, since 2010, we’ve seen fiscal transfers and foreign intervention into its domestic economic policies. Greece’s debt to GDP ratio is now around 180% to GDP, while a lot of the bailout cash has merely served to bail out banks, as Open Europe already warned in 2012.
A number of policy makers now wants to try something new: a Greek exit from the Eurozone. One of them is Christian von Stetten, a Member of Germany’s Parliament and of Angela Merkel's CDU. He states what a majority of Germans believe should happen: "The experiment with the Greeks in the eurozone, who are unwilling to implement reforms, has failed and must be ended". He adds that he's in favour of providing "many billions" in support so Greece can make the transition onto its own currency.
Hereunder I explore what would happen if Greece were to leave the Eurozone, through a legal fudge.
1. Default
If Greece wouldn’t have already defaulted before it would introduce a new currency, Grexit would make it virtually certain that the country would default. It’s not wise to take out a considerable loan in a foreign currency, but that’s what Greece has done since 2001, when it entered the Eurozone. If Greece would introduce a new currency, which then likely would lose value against the euro, it would still need to pay back its debt in euro, which woud appreciate in value as compared to the new Drachma, making this task even harder.
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In order to “help” Greece, since 2010, we’ve seen fiscal transfers and foreign intervention into its domestic economic policies. Greece’s debt to GDP ratio is now around 180% to GDP, while a lot of the bailout cash has merely served to bail out banks, as Open Europe already warned in 2012.
A number of policy makers now wants to try something new: a Greek exit from the Eurozone. One of them is Christian von Stetten, a Member of Germany’s Parliament and of Angela Merkel's CDU. He states what a majority of Germans believe should happen: "The experiment with the Greeks in the eurozone, who are unwilling to implement reforms, has failed and must be ended". He adds that he's in favour of providing "many billions" in support so Greece can make the transition onto its own currency.
Hereunder I explore what would happen if Greece were to leave the Eurozone, through a legal fudge.
1. Default
If Greece wouldn’t have already defaulted before it would introduce a new currency, Grexit would make it virtually certain that the country would default. It’s not wise to take out a considerable loan in a foreign currency, but that’s what Greece has done since 2001, when it entered the Eurozone. If Greece would introduce a new currency, which then likely would lose value against the euro, it would still need to pay back its debt in euro, which woud appreciate in value as compared to the new Drachma, making this task even harder.
Continue Reading
posted by Bramesh at
2:06 PM
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