Should we stay or should we go? This is the question Greek voters must now ask themselves. Each must do a careful cost benefit analysis, looking at the gains from being in the euro and the European Union against the costs of leaving.
If the Greeks leave and default on the rest of their debt, there is a good chance they may not be welcome at the European Union's tables, so they have to answer both questions.
For them, and perhaps for most, the benefits of leaving are transitory, while the benefits from staying may be permanent. On balance, the advantages would press the Greeks to stay. Some of the advantages of being in the EU could be kept with an association agreement, such as the one Norway has, but it would be much harder to influence trade and competition policy, and subsidies would dry up. The euro raised growth in the past and hence we have more output now. Leaving the EU would mean slower growth for a period as some of the gains were reversed.
Similar estimates exist for the benefits from monetary union for the core countries, but these benefits from increased flows of investment and greater competition still lie in the future for countries such as Greece.
Their potential would be lost on exit, and if there were no benefits from leaving, the Greeks would be poorer in future than if they had stayed. The gains from leaving would be immediate, with a devaluation restoring competitiveness and raising employment. However, they would be transitory, as borrowing costs and inflation would climb and be more variable with a floating currency.
The need to reform the labour market would be less pressing, and raising the retirement age from the lowest in Europe could be delayed. Pension replacement rates could remain generous.
But Greece would lose easy access to borrowing, and taxpayers would soon have to face the reality that they would have to pay for those pensions and support all the other structures that need reform. Economists normally advise that bygones should be bygones, but this might be the time to remember past favours.
Eurozone crisis: what if … Greece leaves the single currency. Collapsing banks, soaring inflation, but possible salvation — three experts give their view on what could await Greeks.
A woman exits a one euro shop in central Athens. Greece faced the prospect of fresh polls after political leaders again failed to form a new government. We asked three experts to analyse the potential consequences Nick Parsons, head of strategy at National Australia Bank The choices facing Greece and its people are deeply unattractive.
With Greece on the brink of expulsion from the euro, there was one final chance to avoid catastrophe. Ian Traynor tells the inside story of a dramatic showdown. L ate on the afternoon of Friday 10 July, as European finance ministers were packing their bags for Brussels to attend yet another meeting on the Greek debt crisis, a shocking email from Berlin landed in the inboxes of a very small number of top officials.
Earlier that week, the Greek prime minister, Alexis Tsipras , had been given an ultimatum by his fellow European leaders: deliver a radical new blueprint for economic reform and spending cuts — or face bankruptcy. It was harsh. It was brutal. It was clear that Grexit was an option. It meant that on Monday we would start the preparations. After five years of crisis that had seen Greece bailed out twice — and the rescue of four other eurozone countries — the question was whether Greece could remain in the euro, or become the first country to be kicked out.
In order to stay, and secure another bailout, Athens would need to capitulate to German demands on austerity, overhaul its welfare, pension and tax systems, and surrender sovereignty over large parts of policy-making.
No country could have accepted this. It had to be stopped. The Christian Democrat, who uses a wheelchair after an assassination attempt in left him paralysed from the waist down, is the longest-serving MP in postwar Germany, and has been at the heart of government since He ran the negotiations over German reunification, and he was there at the birth of the euro at Maastricht in Angela Merkel emerged as the main beneficiary, and the new party leader.
The revelation scared politicians across Europe. Others who received the email at the same time included the president of the European Council Donald Tusk, and his main aide, the French leadership, the European Central Bank chief Mario Draghi, the Dutch finance minister Jeroen Dijsselbloem — who chairs the so-called Eurogroup meeting of the 19 finance ministers in the single currency — and Thomas Wieser, an Austrian economist and senior Eurocrat who heads the working group of senior officials that prepares the monthly Eurogroup meetings.
I discussed this word-for-word with the chancellor on the Friday and I also informed the vice-chancellor by telephone. And then we went to Brussels. Although the proposal was not formally discussed, participants said it hovered silently over the session. The meeting was tense and sombre. But it was nowhere near as bad-tempered as what was to come. They resumed their discussions on Sunday morning, before passing the baton to the national leaders — whose summit began at 4pm and ran through the night for 17 hours.
It was the most intense, most fractious, and most heated debate ever held by those responsible for the European economy — retold here through interviews with more than a dozen of the policymakers, negotiators, and witnesses at the marathon meetings in Brussels.
Nobody knew which way it would go until the final hour. The stakes could not have been higher. Financial markets were waiting to pounce on any signals of weakness when they opened on Monday morning. Kicking out the Greeks would have sent a terrifying signal to the weaker countries of the eurozone, a warning that they must observe German-led instructions on sound budgets, austerity, public expenditure cuts, structural reforms. In short, if they did not become more German, they might become the new Greece.
But keeping Greece in the euro would be difficult: after five years of the largest bailout in history, European confidence in Athens had sunk to an all-time low.
T he previous six months of negotiations with the government of Alexis Tsipras had moved in only one direction — from bad to worse. For the Europeans, the main obstacle was the brash Greek finance minister, Yanis Varoufakis , whose sex appeal and radical rhetoric had grabbed headlines.
In his efforts to split the other finance ministers against one another, Varoufakis succeeded only in uniting them against himself. At one meeting in February, Varoufakis and Dijsselbloem had nearly come to blows.
Moscovici, the former French finance minister and European Commission member, had to step in to prevent a fight. By June, the negotiations with Team Tsipras were not just stalemated, they had resulted in a complete breakdown of trust between the two sides. Negotiations were going nowhere. If the Greeks would not act, the creditors would.
It was the beginning of the endgame. It was take-it-or-leave-it for the Greeks. After all this, there was still no deal — and on Friday, 26 June, Tsipras quietly left a summit negotiation in Brussels at lunchtime after having private talks with Merkel.
Merkel was really shocked, according to people familiar with her views. Tsipras hoped that the referendum, which was set to take place on 5 July, would send a powerful message to the other eurozone countries.
Tsipras insisted that the plebiscite was not about quitting the euro. The warning signs are already clear: it is not difficult to envisage a sequence of events over the coming months that would leave Greece no choice but to break away. Greece's election last week produced a messy result, with the two hitherto dominant mainstream parties suffering huge losses.
However, the two parties jointly had seats in parliament, two short of a majority, and could not have ruled alone. The political deadlock has triggered repeated warnings from European leaders that Greece could be thrown out of the euro if it does not stick to the spending cuts and economic reforms stipulated for the bailout — the only thing that that keeps Athens from a messy bankruptcy, which would mean a halt to paying government workers and pensioners.
If Greece cannot form a government — and the majority of voters backed parties who are against abiding by the agreed bailout terms — political unrest will grow on the streets and its neighbours will get increasingly nervous. A second round of elections in mid-June could produce an even larger anti-austerity vote. So what happens if Greece remains without a government?
Belgium recently set a modern-day record when it remained without a government for days. Or what if a government is formed that does not adhere to the strict bailout conditions? The "troika" — the European Union , International Monetary Fund and European Central Bank — would probably turn off the taps and bailout money would stop flowing to the highly indebted country. At the same time, Greek banks would probably be cut off from the liquidity provided by the ECB.
According to Jens Nordvig, global head of currency strategy at Nomura, this would mean that the euros held by Greek banks would become separated from the euros in the rest of the eurozone and over time would turn into a separate currency. He believes that there will be a "Grexit", as it has become called, and that it will come as a result of "a political accident".
It may instead make these payments in promissory notes, which could form the nucleus of a new currency. Greece would face financial infarction: the country's banks would face a bank run. The last time this happened — in Argentina in — some people started sleeping outside cash machines in Buenos Aires so that they could withdraw as much money as possible once the machines has been refilled.
The Argentinian government froze all accounts, banned individuals from taking out more than pesos and halted withdrawals from dollar-based accounts. But the so-called corralito strategy didn't work. The courts supported tens of thousands of depositors and instructed the banks to repay them immediately in full.
The government's policies sparked bloody protests that ended up toppling the government as Argentina plunged into a deep recession.
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