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What Will Happen if Greece Leaves the Euro?

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.

PS Greece, Spain, Portugal and Italy could establish their own OEZ (Off-Euro-Zone) common market…

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12 comments

  1. Good article my friend
    At some stage the financiers and banking fraternity will have a shock as geo politics re-emerges and transcends short term economica. The whole analysis surrounding Greece seems to be on the economic crisis with little if any consideration given to the geographical and as a consequence political importance of Greece. Lets suppose that Greece collapses and descends into chaos (I fervently hope that is not the case) However if it does it will be very quickly courted by both China and Russia who would see Greece as a prize geographically and therefore strategically important ally,especially since the collapse of puppet regimes in the middle east continues. At that point the Americans will suddenly do everything in their power to keep Greece in Nato and the issue of austerity will be regarded as not so important!

    • keeptalkinggreece

      good point nobody takes into consideration. markets abd banks analyze with just with numbers.

  2. A Greece in total chaos and outside the EU is of no interest to China anymore. As it will be no longer an easy foothold into the EU.
    As for Russia: they have shown not to be interested in Greece anymore when they let the gas pipeline deal be scrapped by Bulgaria and never lifted a finger to stop that. And also the Russians have no interest whatsoever in a chaotic Greece outside the EU. The only interest there could be from Russia is through the Orthodox Church. As a Greece in tatters will greatly advance the age old power struggle between Moskou and Constantinopoli in favour of the Russian Church… But who cares about that???

  3. Good point Steve. Russia and China would be interested in supporting Greece, only because of the geographical position as it happened years ago with other countries.
    They will appear as saviors. There has been an official report from Brussells regarding this option as the Europeans are afraid that it might happen and they are not very keen of this option.

  4. Steve, nice comments but if Greece gets kicked to the euro curb, no one said they’d be booted from NATO right? So, I don’t see how the US would allow the Chinese/Russians to do much of anything since Greece would still be a NATO country. Unless you are referring only to giving greece money and having a share of profits, but I hope you weren’t referring to Russians/Chinese installing some Military presence with their Red Colored Marshal Plan?

  5. Thanks for the comments and apologies for my typos too much kokkino krasi me thinks! My point really is that economics are only part of the picture. If any population is put under extreme stress there is an inevitable move towards the extremes. The post 1st world war reparations played a large part in the rise of Hitler and the Nazi party in Germany. We have just witnessed the frightening prospect of a nazi party gaining seats in the Greek Parliament. Given the bravery and suffering of the greeks in the 2nd world war as they resisted fascism this is all the more distressing. Yet, if the people of Greece continue to be pushed into penury and social decay by the very allies that they are in ‘Union’ with, the disenchantment may well not remain simply with finance. It is not unconcievable that if Greece becomes a failed financial state, whilst at the same time Turkey continues its journey to join to join the European club then the whole notion of solidarity with the west (including Nato) will come under threat.
    It is at that point that the likes of China and Russia would seek to gain a strategic geographical foothold. As Maria highlighted above, ‘Russia and China would be interested in supporting Greece, only because of the geographical position as it happened years ago with other countries’.. Russia and China’s interest would not be access to European markets but to sure up there own world positions both militarily and politically. The size of Greek debt at that point would seem like very small change to the current ( and most likely temporary) hegemonic power the US.

    Great site by the way well done!

  6. So, Steve, you are saying that the US would step up and bail out the Greeks instead of letting the Ruskies or Chinese take it first?

    • Probably not, Moe. The US like to stomp for OTHERS to shoulder burdens without offering any concrete support for that. For instance, in the recent years they pushed the EU towards admitting Turkey as a member, in order to keep that strategically important country aligned with the west and not the islamic world. If the US would put their money where they mouth is, they would simply adopt Turkey as the 51st state of their own union. But that, of course, isn’t an option for them.

      And with austerity, it’s the same. Despite knowing very well that the Europeans, just like the US, are at the upper limit of their credit line, they want the EU to abandon austerity and spend more freely again (with borrowed money, of course). At the same time, the federal government and virtually every single state, too, have cut back on their own expenses. So, that’s the same pattern again: They want OTHERS to do what they don’t want to do in any way!

  7. Gray, Not sure I agree with you on the part about the USA adopting Turkey for several reasons but two would be geography and second more importantly is that the Turks are not too fond of the USA, so I doubt they would want to fall under our leadership that’s for sure. But, one thing it’s funny, as I assume you come from Germany is that now Germany gets to see how it is to be like the USA, and when you make unpopular decisions, countries get jealous, or angry and then the slander and meanness starts… Just look at Greece’s reaction to Germany. I had a discussion with my neighbor yesterday and he could not seem to understand why Greece has such a high interest rate and I feebily tried to explain how banks work. Good risk, low interest rate; high risk customer, high interest rate. And explained that unfortuantely, Greece is the equivalent of a person with bad credit, so they get a high interest rate. Oh well, then I got a lecture filled with conspiracy theories, so I changed the subject to how sexy the morning show hosts are on Mega and he moved on (LOL)…

  8. “more importantly is that the Turks are not too fond of the USA”
    I’m quite sure the Puerto Ricans and the Samoans weren’t too fond of the USA when they were forced to join as a territory, neither! They got over it. Btw, what have you other Americans done for them recently? In Puerto Rico, people (on average) earn less than in Greece! Why isn’t this a political issue in the US, and not even mentioned in the media?

    “now Germany gets to see how it is to be like the USA”
    Sadly, true. Sigh.

    “I changed the subject to how sexy the morning show hosts are on Mega and he moved on”
    Good idea! This sure comes helpful every now and then. Btw, I’m glad to see that there are at least some Greeks doing something to improve the reputation of their country:
    http://hollywood.greekreporter.com/2012/04/05/skyfall-james-bonds-new-girlfriend-is-super-sexy-and-greek/
    😀