Consequences of a "Grexit" #EU #Greece #Euro

Greece’s gouvernment is set to default on a debt repayment to the IMF on the 30th June of €1.5bn. In view of this situation its Prime Minister Alexis Tsipras has called a referendum for the 5th of July, asking Greeks to reject the proposals from the IMF and the UE. Moreover, the European Central Bank (ECB) has said that it won’t extend the funds for the banks, which means the risk of driving out of the Euro currency, known as “Grexit”. All of this entails the re-establishment of its ancient currency: the Drachma.

greciaThere are several implications for this event. The first one would be the depreciation of the Drachma due to the short selling of the new currency by speculators or also to a lower demand of the drachma in comparison to other currencies. As a result of this, it would be more expensive to import goods and services, but cheaper for other countries to buy their products, so the exports would increase. Furthermore, the repayment of the debt would be more costly because of the lower value of Drachma. Therefore, Greece’s government would be affected in terms of its credibility.

However, for the rest of the Eurozone there wouldn’t be such a dramatic impact as the one there would have been in 2012. The main problem is related to the halt of debt repayment, but also to the contraction of Greece’s demand of goods and services coming from other Eurozone countries.

In short, we could say, as the predominant German view has shown, that Grexit would be a calamity for Greece, but a minor shock for the Eurozone. Nevertheless, there could also be lots of risks for the European Union.

Esperanza Revuelta

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