The euro could lose value in the currency markets, providing some relief for the eurozone by making its exports more competitive in international trade. But the flipside is that imports from the rest of the world would become more expensive - especially the US, UK and Japan. If Greece leaves, it undermines the idea that the euro project is irreversible and could give a boost to anti-euro and anti-European Union political forces in other countries.
In Spain, the left-wing anti-austerity party Podemos is already gaining ground, ahead of elections later this year. In Portugal, there is growing fatigue with austerity, and it also goes to the polls this year. Under European law as it stands, abandoning the euro probably also means leaving the European Union. But there would be a political aspect to the decision so perhaps some way of keeping Greece in the EU would be found, if all countries involved wanted it enough.
This video can not be played To play this video you need to enable JavaScript in your browser. To state the obvious, no country has left before.
So what would the consequences of a Grexit be? Image source, Reuters. What would happen to Greece? Image source, Getty Images. What would happen to the wider eurozone?
What does it mean for businesses? What about political consequences? Related Topics. Europe economy Greece Eurozone Greece debt crisis. It passed legislation to modernize the pension and income tax systems. It promised to privatize more companies, and sell off nonperforming loans. In May , Tsipras agreed to cut pensions and broaden the tax base. In return, the EU loaned Greece another 86 billion euros. Greece used it to make more debt payments.
Tsipras hoped that his conciliatory tone would help him reduce the But the German government wouldn't concede much before its September presidential elections. In July, Greece was able to issue bonds for the first time since It planned to swap notes issued in the restructuring with the new notes as a move to regain investors' trust. On January 15, , the Greek parliament agreed on new austerity measures to qualify for the next round of bailouts. On January 22, the eurozone finance ministers approved 6 billion to 7 billion euros.
The new measures made it more difficult for unions strikes to paralyze the country. They helped banks reduce bad debt, opened up the energy and pharmacy markets, and recalculated child benefits.
On August 20, , the bailout program ended. Most of the outstanding debt is owed to the EU emergency funding entities. These are primarily funded by German banks. Until the debt is repaid, European creditors will informally supervise adherence to existing austerity measures. The deal means that no new measures would be created. How did Greece and the EU get into this mess in the first place? The seeds were sown back in when Greece adopted the euro as its currency.
Greece had been an EU member since but couldn't enter the eurozone. Its budget deficit had been too high for the eurozone's Maastricht Criteria. All went well for the first several years. Like other eurozone countries, Greece benefited from the power of the euro. It lowered interest rates and brought in investment capital and loans.
In , Greece announced it had lied to get around the Maastricht Criteria. The EU imposed no sanctions. Why not? There were three reasons. France and Germany were also spending above the limit at the time. They'd be hypocritical to sanction Greece until they imposed their own austerity measures first. There was uncertainty on exactly what sanctions to apply.
They could expel Greece, but that would be disruptive and weaken the euro. The EU wanted to strengthen the power of the euro in international currency markets. As a result, Greek debt continued to rise until the crisis erupted in Greece could have abandoned the euro and reinstated the drachma. Without the austerity measures, the Greek government could have hired new workers. Greece could have converted its euro-based debt to drachmas, printed more currency and lowered its euro exchange rate.
That would have reduced its debt, lowered the cost of exports, and attracted tourists to a cheaper vacation destination. At first, that would seem ideal for Greece, but foreign owners of Greek debt would have suffered debilitating losses as the drachma plummeted.
That would debase the value of repayments in their own currency. Some banks would go bankrupt. Most of the debt is owned by European governments, whose taxpayers would foot the bill. Plummeting drachma values would have triggered hyperinflation , as the cost of imports skyrocketed. Many companies refused to export these items to a country that might not pay its bills. The country couldn't attract new foreign direct investment in such an unstable situation.
The only countries that would have lent to Greece are Russia and China. In the long run, Greece would find itself back to where it began: burdened with debt it couldn't repay.
Interest rates on other indebted countries would have risen. Rating agencies would worry they'd leave the euro also. The value of the euro itself would have weakened as currency traders use the crisis as a reason to bet against it. A widespread Greek default would have a more immediate effect. First, Greek banks would have gone bankrupt without loans from the European Central Bank.
Losses would have threatened the solvency of other European banks, particularly in Germany and France. They, along with other private investors, held Eurozone governments owned That's in addition to the billion euros owned by the EFSF, essentially also eurozone governments. Germany owned the most debt, but it was a tiny percentage of its GDP. Much of the debt doesn't come due until or later. Smaller countries faced a more serious situation.
The ECB held If Greece had defaulted, the ECB would have been fine. It was unlikely that other indebted countries would have defaulted. That's when Russia's default led to a tidal wave of defaults in other emerging market countries. The IMF prevented many defaults by providing capital until their economies had improved. The IMF owns The differences would be the scale of defaults and that they are in developed markets.
It would affect the source of much of the IMF's funds. While a huge backer of IMF funding, it's now deep in debt, itself. There would be no political appetite for an American bailout of European sovereign debt. Bureaucracy often delays commercial investments for decades. The government has shrunk, but it is still inefficient. There is too much political patronage. In global financial history no country has received as much money as Greece.
Rescue has come at a price. The conditions attached to such aid have been tough, unpopular and, at times, punitively aggressive. But the fiscal straitjacket has also stifled economic growth. In his seventh-floor office, the airconditioners whirring, he momentarily pauses. But the result was the implosion of the Greek economy.
Still, the academic who previously advised presidents of the European commission and European council, is like Theocharis, incredulous that democracy has fared as well as it has. Thugs may have appeared in the form of the far-right Golden Dawn , polarisation may have worsened and discourse coarsened, but institutions remained intact.
The bad news is that the price we have paid is huge. Socially, Greece is an injured society, it is traumatised and it is humiliated. On the surface it still has a patina of acceptability — the decor that most have come to expect of Greece. For the EU, dealing increasingly with the twin ills of nationalism and populism and keen to put Greek drama behind it, that is more valuable than words. But radical downsizing has also had a corrosive effect.
Every month the society struggles to pay its bills, mostly because of the onerous task of having to keep up with taxes. The rout in led to the loss of territory formerly ceded to Greece and a major exchange of ethnic Greek and Turkish populations.
In his own life, he has witnessed brutal German occupation, the bloody civil war that came on its heels, and seven years of military dictatorship before the return to democracy in The latest crisis comes high on his list of national defeats, but despite it all, he remains irrepressibly optimistic.
Most nations would have disappeared. Georgopoulos need not have exerted his efforts on saving Parnassos. As co-founder of the largest law firm in Athens, he could be enjoying carefree retirement.
But he belongs to the great band of Greeks who have rallied during the crisis and proved that the good give.
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