J.C. Juncker (EU finance minister) had this to say:
“We’re not discussing the exit of Greece from the euro area. This is a stupid idea -- no way.”
The Greek finance minister, Papaconstantinou chimed in with:
Public debt would double, consumer spending power would be “shattered” and the country would sink into a “war-like recession,”
Okay, so no exit for Greece. Panic over for the time being. The conclusion is that once one joins Club Euro you can’t quit. Ever. Ever? That seems like a long time.
There would be a lot of pain for Greeks if the country decides to step outside the fixed peg of the Euro. Debt would soar in value as the old Drachma is introduced. Social payments that now are denominated in Euros would also cost the state much more. As a result all Euro denominated fixed liabilities by the state or the private sector would have to be restructured. That would entail big losses for many EU banks. It would also crunch the local Greek banks and many of the Greek citizens who hold the bonds.
But hold on a second. Aren’t all those bad things happening already? The holders of Greek debt are looking at TV screens and everyday they are reminded that their assets are trading at 50-60 cents on the dollar. The Greek economy is in the dumpster. It has been for years and it’s not going anywhere as long as this crisis lasts. Greek citizens are seeing round after round of cutbacks, but no progress is being made.
Were it not for the ECB providing short-term support, Greece would have gone belly up a long time ago. The folks in Brussels know that the support necessary to keep Greece afloat will have to be in place for at least another decade. The cost to the big countries in the EU is going to be a non-stop political headache for years to come. There is absolutely no possibility that the Greek economy can grow and prosper given the status quo. So who’s kidding whom when it comes to the pain? Everyone involved is already bleeding pretty badly. How worse could things get?
I think the Greeks should have exited from the Euro a long time ago. They hitched their future to a strong horse and they simply can’t keep it up any longer.
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