There is so much talk these days about a possible euro exit of Greece, especially under a left, anti-bailout government. I found an very interesting article about the consequences for Greece and the other Euro countries. The author, an Italian, asked several market experts on the impacts that “such a shock” would have on financial markets and the real economy. The article begins with the crucial question: Can an EU member leave the European Union and the Euro zone? Leave, EU “Yes”, but leave EZ is questionable, as it has not been foreseen in the Treaty.
“Article 50 of the Treaty on European Union stipulates that a member country, without any motivation, can freely leave the European Union. And consequently, according to the prevailing view, even the euro. But the same article, nor other of the Treaty, does not refer to what would be the mode of exit and return to the domestic currency. In this climate of chaos in financial markets and regulatory uncertainty, Greece seems more outside than inside the euro.”
While some experts predict ” problems”, others “see” the end of Greek world with rising inflation, interest rates and social unrests.
According to Vincent Longo of Ig Markets “the country would find itself starting from scratch, with an economy entirely to rebuild without aid or funds from outside. Moreover, the country could be isolated from trade with the rest of the area. Do not overlook that would be seriously threatened the credibility of the country and this would complicate the ability of Athens to attract capital from abroad. On the other hand, Greece could enhance the ability to independently decide its monetary policy, which at this time of crisis could be guided towards a devaluation of local currency, the drachma, to restart the economy. In this scenario we expect that the recovery that the country could have would be much slower and more painful than the rescue provided by the EU”.
As for the consequences to the euro zone itself, experts seem to agree, that if other euro-weak members follow Greece:
“Euro would emerge stronger because it would get rid of one of the countries most vulnerable and problematic that both cost the European community, on the other hand, would increase tremendously the pressure on other weak countries, Spain, Portugal and Italy “, agrees Vedana.