- source- Economic times
- WILL GREECE LEAVE THE EURO ZONE
- Unlikely in the near future.The fallout of Greeces exit would be
more painful than negotiating fresh conditions under which the austerity measures and repayment obligations could be eased.Any exit has to be voluntary as no country can be pushed out.
- WHAT HAS CHANGED POLITICALLY FOR GREECE
- New French President Francois Hollande has hinted at some relief
for Greece as he stands for liberal government spending rather than austerity.Even Chancellor Angela Merkel,who has been the prime mover of the austerity drive,could agree to climb down as a possible Greek exit could hurt German companies and banks and her country would lose all economic benefits it gained from the single currency.
Its banking system will collapse,with depositors pulling out funds and banks ownership of Greek bonds becoming worthless.Bank funding will dry up as ECB wont lend anymore.Creation of a new currency,or the return to its old drachma,will lead to depreciation of as high as 80%.That would bloat debt and make imports impossible,causing job losses & poverty.
- WHAT IF THE BANKING SYSTEM COLLAPSES
The contagion will spread since faith in the euro would vanish.Peripheral countries such as Portugal and Spain,where the banking system is perceived to be weak,will also come under assault as people will pull out funds.Once the contagion spreads,the financial markets will seize up.
- CAN GREECE GAIN FROM TRADE IF CURRENCY FALLS
Once it pulls out of the euro zone,its trade with other countries will face tariffs.Movement of capital and labour will also be restricted,causing more pain.
- HOW MUCH IT NEEDS TO REPAY DEBT
Greece will need around 20 -28 billion a year until 2016.Thereafter,the funding requirements could fall below 20 billion and converge towards 10 billion.Under this scenario,bailout III would require around 110 billion from 2015-2020,according to RBS.
- IS AN ORDERLY EXIT POSSIBLE
No.Approximately 20% of the worlds reserves are in euros,and a larger notional amount of euro swaps are traded than dollar swaps.An exit would almost automatically be disorderly as different laws govern different contracts.