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ToscaFund: Euro Exit Will Lead Greece to Zimbabwe-Style Inflation

Should Greece exit the euro zone the impact would “be more than catastrophic with Zimbabwe-style inflation, social unrests, banks run and a military coup.” This horror-scenario was scripted by Savvas Savouris, chief economist of  Tosca Fund, and was distributed to the clients of the London-based hedge fund. Introducing a new currency in Greece instantaneously in the wake of a euro exit would be impossible and a delay would lead to a run on banks and evacuation of capital” wrote Savouris adding that the magnitude of the social, economic and political earthquake would be unimaginable. The government would be unable to raise money on bond markets, hyperinflation will rule the country, the elderly will suffer severe poverty.

What Savouris wrote down after a thorough research, is what Greeks have been knowing instinctively and therefore oppose a euro exit.  The new currency devaluation would economically ruin people within 24 hours, especially those of the middle classes.  Insurance funds will collapse, pensions and salaries will drop into the amount of a tip you give to a waiter. No to mention the sharp price increases and the new class of black-marketers who will trade a liter of oil and a kilo of sugar for a small apartment. Not to forget that the state will not be able to import fuel, then as everybody knows “no money, no trade”.

Here are Savouris predictions as  published by Reuters

Tosca Fund: Greece euro exit worse than catastrophic
LONDON (Reuters) – A Greek exit from the euro zone would be worse than catastrophic and could provoke greater social unrest, Zimbabwe-style inflation and a military coup, said London-based hedge fund firm Toscafund.

In a stark note to clients, chief economist Savvas Savouri said introducing a new currency instantaneously in the wake of a euro exit would be impossible and the delay would lead to “a run on banks and evacuation of capital that would make what has already been seen as nothing by comparison.”

“The word catastrophic would not do it justice enough,” said Savouri, who comes from a Greek Cypriot background.

“Those who imagine some post-euro-exit stability would be restored … quite simply fail to understand the magnitude — social, economic and political — of such an eventuality.”

Toscafund said it invests solely in equities and does not give details of its positions.

Earlier this week German Chancellor Angela Merkel said the goal was for no country to leave the euro, as negotiations between debt-laden Greece and its creditors continue ahead of a major bond redemption in March.

Savouri said he would expect the euro to remain the currency of choice in Greece even if it left the euro and for the official exchange rate with the euro to be quickly undercut on the black market.

He predicted a range of problems for the country, from hyperinflation, extreme difficulty for the government in raising money on bond markets and an evacuation of people able to leave the country, taking as much wealth as they can with them.

“Inflation in Greece would quite frankly spiral in a way resembling Zimbabwe’s experience,” said Savouri, who also predicted severe poverty amongst the elderly.

“The social unrest seen up until now in Greece would be nothing compared with what would be seen in the dawn of a new drachma.”

“It would not be hyperbole to argue that the denouement of a Greek exit from the euro would be at worst the rise of poisonous political extremists and at best a military coup.”

Last year Savouri produced research notes saying that reunification between North and South Korea was “certain” and that South Africa was flawed and set to “blow up” within the next 15 years.

Zimbabwe inflation was an example that every journalist would study in order to learn how a state economy can collapse. Over the course of the five-year span of hyperinflation, the inflation rate fluctuated greatly. At one point, the US Ambassador to Zimbabwe predicted that it would reach 1.5 million percent. In June 2008 the annual rate of price growth was 11.2 million percent. The worst of the inflation occurred in 2008 and 2009, leading to the abandonment of the currency. The price of $1USD cost $Z2,621,984,228[18] in October of 2008.

I remember how we used to follow Zimbabwe’s inflation rates in the 1990’s and early 2000’s – just for the fun of it.

In 2008, the Mugabe government stopped feeding the country’s inflation statistics with new data. The latest data on Zimbabwe’s Hyperinflation were recorded in July 2008 : 231,150,888.87 percent!!!

PS I was never in Zimbabwe but I remember very well that the inflation in Iraq in the middle of the 1990’s was standing at several thousand per cent, food prices were in unbelievable heights and the annual income of civil servants was at 500 USD. I can very well recall, that I would exchange 100$ and receive two plastic bags full of Iraqi Dinars printed in bad quality. With these 100$ I could live like a queen for two weeks, feed my Iraqi friends and make generous charities. At the end I could go home with some Dinars as souvenirs….

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  1. iaourti iaourtaki

    To stop all these speculations one must put Drachma instead of Euro as new currency for the complete Eurozone

  2. Zimbabwe-style inflation in a Zimbabwe-style governed country. So, where is the point?

    • keeptalkinggreece

      the point is that Greece is on the European continent and therefore any comparison with any country in Africa triggers confusion.