LONDON – Maybe it’s not the Hotel California after all.
Ever since the idea of the euro currency really took off in the late 1980s, it has been accepted wisdom that entry was forever. But now, with no less than the leaders of France and Germany conceding that Greece could leave the euro, everyone is scrambling to figure out exactly what would happen.
The stakes couldn’t be higher: many economists say it could plunge the global economy into another crisis on the scale of what ensued following the collapse of U.S. investment bank Lehman Brothers in 2008. Others say it would spell the beginning of the end of the dream of building a unified Europe from the ashes of World War II.
Yet some are saying it’s the least bad of all possible outcomes, part of the only remedy available for a currency, launched in 1999, whose design flaws have led to three countries requiring rescue. The crisis is now threatening Italy the eurozone’s third-biggest economy and is showing alarming signs of infecting France its second-biggest.
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If Greece decides to go back to the drachma following what would likely be a disorderly default, there would likely be a run on banks as depositors uncertain of the value of the new currency yank out their euros that is if they are still given a chance. With deposits potentially running dry, banks would stop lending to one another and fail as they lost access to cash needed for their daily operations. Without capital, businesses would collapse and consumers would stockpile goods.
And that’s just in Greece.
Investors would immediately begin speculating on which euro country would be next to fall, leading to the same kind of chaos across the continent.
“This, unfortunately, is the cost of a badly designed monetary union,” said Dario Perkins, an economist at Lombard Street Research. “While in the long term, some countries leaving the euro area might be a good thing for them and the countries that remain it will surely be some time before those benefits are realized.”
Until recently, discussions about a country’s exit from the euro had been confined to market commentary and academic papers (British Foreign Secretary William Hague derided the currency as “a burning building with no exits”).
Suddenly, top officials are openly discussing the possibility. At a recent summit during discussion of a possible Greek referendum on its rescue deal, French President Nicolas Sarkozy and German Chancellor Angela Merkel said in a statement that “the question is whether Greece remains in the eurozone.”
“That is what we want,” they said, “but it is up to the Greek people to answer that question.”
The referendum has since been canceled. A new Greek government now has seemingly not much more than 100 days to push through a package approving Europe’s latest rescue package and another round of punishing austerity, over the objections of many Greeks who have staged months of violent protests.
A growing number of analysts believes those efforts will fail, and that Greece’s days in the euro are numbered.
They say Greece would do better to cut and run, avoiding the straitjacket of a decade’s worth of austerity.
The current plan would give Greece euro100 billion ($176 billion) more in bailout loans and get the private sector to forgive half of Greece’s debt. But even in the best-case scenario it would leave the country saddled with a debt burden of 120 percent of gross domestic product a decade from now which is the level that’s causing Italy so much trouble at the moment.
“Right now they are committing themselves to 10 years of Draconian austerity that won’t work,” said Peter Morici, a professor at the University of Maryland. “If you want to become the Burma of Europe, this is the way of getting that done.”
Morici and other proponents of a euro exit concede that the short-term pain for Greece would be huge, as deposits are converted into much-cheaper drachmas, import prices go through the roof and the financial system faces potential collapse.
But they argue that Greece would eventually be able to re-invent itself through its ability to print its own currency and 고창출장업소 set an appropriate economic policy for its own needs. Tourism, Greece’s number one industry, could reap a massive windfall as it becomes a cheaper place to holiday.
“Letting the value of the drachma fall to levels consistent with a trade surplus that permits Greece to service its debts, Greece’s economy would begin growing again, and many of Greece’s army of unemployed would be put back to work,” Morici said.
Others are highly skeptical that Greece or anyone else would benefit from it exiting the euro. A Greek departure would open up a whole new set of uncertainties in the markets: Instead of wondering which country may have difficulty paying its debts, investors would begin to wonder who is next to leave the euro.
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