The Greeks voted a resounding no to giving into EU demands on austerity without debt reduction. The Greek banks are out of cash. Imagine living in such conditions. Greece needs its own central bank so it can prevent its banking system from collapsing. That means it needs its own currency. The claim is made that it takes 6 months to introduce a new currency. Balderdash. As someone points out in the Marginal Revolution comments, one could use the same printing presses as Greece now uses to print Euros and just slightly modify the currency label to say Greek Euro or something similar. The whole art work does not need to be unique.
Also, lots of payments could be made with debit cards and other electronic means. The amount of physical new currency cash would be reduced both by still existing Euro cash and by electronic payments.
So if Angela Merkel and company do not blink and offer Greece debt reduction the path to #Grexit seems most likely. Then the depths of the resulting downturn will be determined in part by how fast Greece can transition to its own currency.
One thing the Greek government will likely do while doing the transition to their own currency: stop all debt payments. The government might shaft some of their domestic suppliers who they owe money to by paying them in depreciated drachmas. This could cause some domestic bankruptcies and make the downturn deeper.
So glad I'm not there.
What matters in the long run: sovereign debt is rising in most Euro zone countries. Not yet at Greek levels. But the next world recession could push many European countries into a dangerous debt level zone pretty quickly. Greece is a small scale rehearsal for what Europe is going to hit in its next recession. Will more countries fall out of the Euro then with far more calamitous results?
|Share |||By Randall Parker at 2015 July 05 02:37 PM|