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?