Consequences of a Greek Exit from the Euro-Zone
In the midst of renewed calls for Greece to step out of the Euro-Zone
over the past few days, several vantage situations have been contemplated and
cited. Analysts have argued that a Greek Exit is a matter of ‘When’, rather
than ‘Whether’. But while these arguments are legitimate and reasoned, they
exhibit only one side of the coin.
The consequences of a
Greek exit from the Euro-Zone can be catastrophic not just for Europe, but the
entire global economy. It can, and probably will lead to a break-up of the
Euro-Zone, and its consequences will be grave.
Setting the
Clock a couple of Decades back
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| The Thumbs Down to the Euro-Zone! |
When we do consider a disintegration of the Euro-Zone, one
needs to go back in history and look at the reasons as to why it was
established in the first place. A congregation of a number of countries, and
economic integration without political integration, it’s a concept which has
been questioned time and again. Deemed flawed by more than a few analysts, it
seems more and more likely that they were right. The vision of an empowered
block of countries, rejuvenated by common market policies, brought all the
major economies together to institute a
shared currency in 2000. The dream was shared and lived for almost a decade,
until it turned into a nightmare. Analysing the concept itself, the idea of
economic integration and common market dynamics, coupled with political
incoherence and policy diversion, is a recipe for disaster.
Together We Rise,
Together We Fall
But this concept, even though flawed, was realised for more
than a decade. And the Euro-Zone is, and
shall remain to be, the largest economy in terms of GDP, if we were to consider
it as an economic block as a whole.
A Greek exit will lead to many more countries contemplating
the same, and countries like Ireland, Spain, Portugal and Italy may follow
suit. A Euro-Zone Break-Up will taken a region a couple of decades back, as far
as international geo-politics is concerned. And Europe’s might, in an increasingly
multi-polar world, will be considerably diluted, something which no country or
leader wants.
The
Economic Fall-Out
Whatever the geo-political consequences might be, the
economic aftermath is bound to be a Pandora ’s Box. As and when Greece leaves
the Euro-Zone, it is expected to revert back to its domestic currency, The
Drachma, which would be relatively devalued. Now the good part is that
reverting back to your domestic economy will help wipe off the enormous public
debt. The bad part is that it will cause erosion in the bank deposits and
savings of millions of people in Europe. That then will lead to a credit
crunch, and lack of liquidity in the markets. The anticipation and the
speculation around such a situation is another nightmare. All this will affect
the global economy adversely, and contagion to other major economies would be
inevitable.
So, while Greece goes to elections on June 17, and while
Euro-Bonds are seriously considered, and while the ECB and the IMF firefight
this sovereign debt crisis in the best way possible, it would be wise to
excogitate a worst-case scenario for a Greek exit, rather than a best case
scenario, which is projected by the proponents of a Greek exit.
For a Euro-Zone Exit is a path traversed never before, and
no one is sure what lays ahead, not even those who are at the helm in
Europe.
