World Economy

Greek Debt Disease Danger Contained?

Greek Debt Disease Danger Contained?Greek Debt Disease Danger Contained?

The European Monetary Union was designed to last forever. It logically follows that there is no script for what to do if one of its members leaves. Given such strong European economic ties, a Greek exit would be historically singular and would of course entail risk. No one can predict exactly how governments, companies and citizens would handle a so-called “Grexit.”

But if the Greek government doesn’t see any other way out, then we’ll simply have to accept a new reality. The idea of a politically unified Europe would take a serious battering because suddenly the eurozone would appear like a club where countries can leave whenever they wish, WorldCrunch reported.

Still, it seems unlikely that other European states would follow the Athens example, which is one of the key reasons we know that Europe’s economy would survive a Grexit.

It is even possible to imagine positive aspects of such a scenario. A eurozone with only 18 members would be more stable and therefore better suited to survival. Since the inception of the European Monetary Union, Greece has always been an exception. Joining the eurozone in 2001 was more of a political wish than an economically justifiable development.

It became obvious in May 2010 that Greece was bankrupt. The International Monetary Fund and the European Central Bank tried to prevent spread of the Greek debt disease to the rest of the EU with two “care packages.” And the danger has been contained.

Europe’s banking sector is also more stable than it was five years ago. The ECB’s decentralization and the recapitalization of banking institutions have served as a fire wall. In addition to this, Europe’s banks have long lost faith in Greece, and factored a potential Grexit into their calculations when dealing with the country’s financial institutions.

Stock prices would initially take a dive, no doubt. Resurrection of the drachma could also offer Greece a real chance at redemption. A cheap currency would lend itself to providing aid for growth even though the transition wouldn’t be easy. Imports would become more expensive, while medication and other vital goods could become scarce. But Europe should and would help.

Though the taxpayer costs for a Grexit would be high—Germany alone has issued 50 billion euros in loans to Greece—perhaps it’s just the price for political naivety, for having gotten Greece on board in the first place. And who knows, maybe Greece will reapply to become part of the Eurozone again in a decade, when it is stronger. And even if it doesn’t, it seems that the UK and Denmark are managing well without the euro, so why not Greece too?