Greece’s former and ancient currency unit known as ‘drachma’ translates as a ‘handful’, something which is lot less as to what Greece has to pay in the form of its debts. With the state unable to devalue its currency and the country hobbled with towering debts, it is definitely not in any position to pay up.
All these factors are further coupled with increasing market turmoil, formation of anti-bailout political alliances and a feeling of immense dissatisfaction among people. However, all this turbulence trickles down to some burning questions that require answers and here are some of them.
Q. Will Greece exit the euro zone and switch over to its currency ‘drachma’?
In case the upcoming government of Greece takes the course of a possible departure from the Euro zone as current situation suggests, it is important to look at some major repercussions Greece will have to face:
· Greek meltdown: In case of departure, Greek banks will collapse, people’s savings will freeze, the cost of imports would soar uncontrollably and it would become impossible for people to fulfill their basic necessities.
· Debt Default: unable to borrow from anyone it would not be possible for Greece to sustain itself economically. Repayment of 240 billion Euros that Greece needs to pay EU and IMF will become impossible. Moreover, with Greek central bank going bust it will not be able to pay 100 billion Euros it has to pay European Central Bank.
These factors will further pave way for bank ruins, business bankruptcies and intensifying market chaos. Hence a clear answer regarding Greece euro zone exit is a straightforward NO.
Q. If Greek government decides to leave the euro zone, what does that mean for the euro and European Union on the whole?
To make one thing clear, EU does not want Greece to exit the euro zone. This has recently been expressed by European Council President Herman Van Rompuy. But at the same time he also stated that Greece will have to respect its commitments. Here is the key problem, if Greece decides for an exit, it will default. And the loss resulting from this default will be extremely high.
States and organizations who have constantly been pumping loans in Greece will receive crippling bills showing losses worth billions of Euros. State governments will have to provide more money for recapitalization of the European Central Bank, something they are not in a position to do at present. So, contrary to what many would believe, a Greece exit from euro zone will actually make the cure worse than the disease.
Q. How will the situation differ if Greece plans to stay?
Not much different. It’s not about a state entering or leaving, but about the debt that it has to repay. If Greece decides to extend its bond with euro zone it will still have to pay all the debt it owes to ECB, EU and the different states. Even after 50% write-off of its debts the state is by no mean in a position to repay its debts anytime soon.
With the economic situation of Europe and in particular the euro bloc undergoing deterioration, the repayment of debts provided is turning out to be the core issue of the problem. Whether Greece decides in favor or against in continuing its relation with euro zone, only one thing is certain. In either of the situation it is going to be ‘Euro’ that will be most vulnerable if things take any unpredictable turn.