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Ernst & Young study: Impact of Grexit – the ‘good’ and the ‘bad’ scenario

The impact of a possible Grexit for the Greek economy and society has been outlined in a study conducted by consultancy firm Ernst & Young in cooperation with Oxford Economics. “The study was launched in March 2015 and completed end of May 2015. The purpose was to provide information to foreign investors on what it would mean if and when Greece was to exit the Eurozone” E&Y Hellas CEO Panos Papazoglou said.

According to the study, EY presented in quite some details the impact of a Grexit in combination with an orderly bankruptcy. And this is the “good scenario”.

“Good scenario” key findings:

– A coordinated exit would saddle households and business companies with very high cost, thus would leave the country geopolitically isolated.

-When and if the new currency would be introduced, during the initial period restrictions in capital movements would be imposed for  a long time, while the new currency would be devalued by 50%. Any speculative pressures in the new currency have not been calculated.

-The Adoption of an intermediate financial instrument (i.e. IOU) would have as much value as the value the IOU-receivers would perceive.

-The GDP would be reduced by 15-20%. In case Greece would exit the common currency, the estimated loss of GDP would be 50%, cumulatively from 2007 up to the adoption of the new currency.

-Inflation would skyrocket and unemployment would rise by at least 30%, in the first period of the adoption of the new currency. There would wages, credit and investment reductions in terms of the euro, the Greek economy would never be able to recover its previous dynamics. The compression of  disposable income of the households would greatly affect the population categories with low and stable income.

– In a first approach, the combined effect of leaving the euro would lead to a reduction of the per capita income to 11,000 euros against 17,000 in 2014.

-If there was agreement for a “haircut” of 50% of the debt, then the debt would remain at 130% of GDP. This would reduce the maneuver ability of the government, thus excluding the possibility of fiscal loosening.

– Prices of imported products would be greatly increase with serious repercussions since the Greek economy relies heavily on imports.

– For banks, it would mean a drastic reduction credits. Investments would decrease by around 30% over the first two years and no increase is foreseen before the end of the third year (since the exit from the euro).

– For tourism the question is whether it would enhanced. And this because the tourists could not be served due to lack of basic goods.

-An orderly bankruptcy would benefit those who have accumulated wealth abroad.

As for the “bad scenario” of a disorderly bankruptcy… this would “open the gates of hell,” CEO Panos Papazoglou said characteristically. (translated by KTG from capital.gr)

I would like to know whether EY study contains also details of the bad scenario…

PS I assume if the bad scenario would open the gates of hell, the good scenario is just walking down the hell hallway?

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21 comments

  1. With such reports..,there was alternative to austerity ?
    I dont think so

    • keeptalkinggreece

      and austerity + new loan is alternative?
      I dont think so

      • At this point in time I think there will be negotiations about debt restructuring(not a haircut but lower interest and much longer runnings bonds) by the time the first review of the measures included in the third package is completet. Even in ger opinion is shifting and most people realize the money cant be paid back completly.
        At the same time I looked up for numbers and found that
        a. about 11bn from the new package is flowing into greek government or pension funds and thats after the proposed cuts and taxraises, so I think anyone who doesnt want theses austerity measures has at least to explain where else that money should come from in the future.
        and b. this assumption that french and german banks were the huge beneficiaries of the last packages is flat out wrong. Attac lists that about 100bn / a bit less then 50% went to pay of old loans to private creditors. Thats all private creditors the biggest portion of which were greek banks and pension funds.

        Anyway at this point Id like to ask again, what is syrizas plan for the deficit(not the debt which is rather irrelevant so long as no money is actually flowing to pay it off). Its not that much at this time but I think it is clear that so long as the money flow(on government level) is going into greece the government will not be free in their decisions. Also ill repeat the question i asked xenos a while back. Suppose in 2010 all debt got cancelled, there is still a huge (10%+) deficit. Anyone denouncing austerity please explain to me the alternative way to get that under control.

        • keeptalkinggreece

          what is syrizas plan for the deficit. = how could I know?

          • well what is your plan then? or xenos’ since hes the economist.
            This is not a rhetoricals question. I can see many ways to make the austerity more social by shifting the burden from the low income to high income, but I dont see how to get around spending cut/raised taxes in general.

        • Giaourti Giaourtaki

          To believe that these 11 bln are fixed is naive, nothing of the whole shit will be fixed as “negotiations” have to start first.
          Just a few days ago Attac should have listened to Alexi Tsipraki pointing out in parliament that the losses of the Greek social security made by PSI were 27 billion.

          • Im not saying it is fixed, Im saying there is still a gap in government expenditurre vs income that needs to be closed and I want to know how people think that should be done. That it needs to be closed seems obvious to me for 2 reasons. One the hand I think it is a reasonable and fair demand from other countries that there cannot be a permanent flow of money from other taxpayers into greece outside of the eu budget. And secondly and more importantly for the greek this is the only way to get back your sovereignty.

            • Giaourti Giaourtaki

              Very easy: Let unemployed get educated by the best Greek bank-robbers and send them to Europe

  2. The actual data shows that the break up of a currency union might actually be positive! But for all of the old and new apostles of TINA (“There is no Alternative”) the Grexit scenario will always be demonized.
    Truth is, if Greece and other peripheric countries want to get out of austerity and savage neo-liberalism (rule of the 1%) it will be necessary to drop the euro. Saying otherwise is a delusion
    bloomberg

  3. MARYANN CATHOPOULIS

    Something REALLY important to know is who commissioned this report? Often, such reports reflect the ‘bias’ of whoever is paying for the report.

    Take a look at the polls. They reflect the bias of whoever is commissioning such polls.

    I would be interested in reading an analysis performed by a non biased entity.

    • Also it is very important to see the whole study,the assumptions made, the middle and long run effects in relation to the austerity program

  4. Ernst & Young and misIeadingIy named Oxford Economics [implying a connexion with the university, when there isn’t]…..considering the similarity of these warnings to Stournaras much derided, highIy poIiticised “report”, and the differences with existing impartiaI studies saying totally different things but agreeing with each other, we shouId wonder WHO paid for this ridiculous scare mongering.

    For an alternate view try BiII MitcheII or consider recent historicaI examples Iike SIovakia.

  5. The “good scenario” is that Greece defaulted in 2010, told the corrupt EuroGroup to go fuck themselves, and either stay in the EZ or leave. Papandreou decided to accept the worst possible deal for Greece — and this is where we are now. All the options are bad.

    • defaulted in 2010 => leave EZ in 2010

      The rest can stand.

    • So how could deposits in Greek banks have been saved back in 2010? It seems many Greeks are living off their savings now, but if Greece had defaulted in 2010 they would not have any savings.

  6. offtopic but i thought this might be interseting, spiegel is reporting that the troika is willing to lower the targets for the primary surplus for this and next year possibly after that as well.(also your spam protection sometimes sucks, pretty sure 1+8=9 even if the system disagrees 🙂

  7. THE EUROPEAN UNION WAS FORMED
    A UNION THAT WAS MENT TO WORK FOT THE EUROPEAN MEMBERS
    NOT JUST FOR 1 YEAR OR 9 YEARS like Yannis Varoufakis complimented them for.
    THE EUROPEAN UNION WAS MENT TO WORK FOR ALL THE EU MEMBERS & FOREVER
    FOREVER IS A LONG LONG TIME
    SO HOW COME IT FELL APPART ?
    AND NOW
    THE ONLY THING THAT MATTERS IS THAT THE BANKS GET THEIR DUES.
    *
    Ernst & Young Global Limited
    Multinational prodessional services firm
    HQ London
    One of the Big Four audit firms
    It provides assurance – including financial audit – tax, consulting, & advisory services to companies.
    *Tax Avoidance
    *Accounting scandles by the numbers.
    I would not buy a vacume cleaner from them or on their say so –
    What exactly are they going to tell us about Greece ?
    Anything that might be helpful ?
    To whom though ?
    There is an investigation beginning so as to discover if the formation of the European Union wasn’t just a scam to loot the EU Countries ?
    Not one of the EU member countries is happy with the outcome of the last 9 years.
    If they had been told it will only last for 9 years & then you will be cast into the abis they would not have joined up in the first place.
    PROMISES & ASSURANCEDS WERE MADE OF SUCCESS & A BRIGHT FUTURE FOR ALL THE EU MEMBER COUNTRIES.
    SO WHAT HAPPENED.

  8. Costis Hatzopoulos

    I am searching through the web to find the full study. While there the study findings are announced, the actual study seem to be nowhere. If someone has a link, this would be really appreciated.

    Even capital.gr does not have a link to the full study.

  9. Costis Hatzopoulos

    I would really like to thank you for your effort, but the link points to the the press release and not the full study…