What would happen if Greece exits the EU?
No exit is easy to cope with. And it is not easy for Greece to bypass the German-imposed austerity. Normally, depressed economies recover through currency devaluation, to become relatively more competitive; a non-existent option for Greece. Consequently, it must compete against stronger economies including Germany’s, regardless of its deathbed economy. Therefore, the only option is to submit to the endless austerity to remain in the EU.
Of course, a long-term option is to exit the Eurozone and live in freedom from mounting financial distress, that is now reaching combined proportions. But, that would mean the demise of the Euro. Greece’s suffering will be worsened by other members, particularly Germany, a mere indicator of worst-case scenario of exiting the Eurozone.
Following an exit, Greek goods and tourism will be cheaper for Europeans since Greece is not yet a stellar export market. Should Greece stay, the best-case scenario will be like Italy’s – never developing however much cash inflows. The worst-case scenario, on the other hand, will be renegotiating emergency measures a short time after the exit, because breaking off the Eurozone will certainly have short-term suffering for the Greeks.
Existentially, Greeks have not much of a choice other than the Eurozone deal. Refusing the deal would mean enduring banking crisis and austerity; a hope for a sustained economic growth upon exit. The deal may be hard for the Greek government to implement as it will imply deep and long-term recession, which will make debt services difficult to manage. The need for regular infusions from creditors is the reason behind Greece’s stay.
It is a tough choice even today for economies in the Eurozone. It is a trade-off between economic revival after the exit, owing to detachment from the Euro, or disastrous social, political, economic, and geopolitical repercussions. But, there is also a technicality involved; a voluntary exit is only possible if the ECB relieves Greece of emergency loans that are supporting the Greek Banking System. Should the exit thrive, Greece may be forced to print out money to bail out the financial sector. However, since Greeks cannot legally print Euros, Drachmas are the only option. ECB’s policies could hinder Greek banks from borrowing, thus putting pressure on Greece’s negotiators. Also, Greece may be required to default on its debt services, introducing a new currency thereafter. On exit, Greece could follow the Argentina-option, revive the Drachma, and reap the benefits of a devalued currency.
Nevertheless, it may not play a positive role in case of Greece, as were with Argentina. Argentina was better positioned through its agricultural sector, coupled with China’s export market for its corn and soy. Greece only export refined petroleum products to the international market, which will be affected by its pulling out of the E.U. worse enough, the crude oil import is priced in dollars, which remains a nightmare against its would-have fallen Drachma. This makes the trade less competitive if not non-profitable. Greece will still face other economic challenges: banks and corporations will suffer debts owed which will still be valued in high-value Euros. Therefore, exiting the Eurozone will imply higher inflation, little current account balances to run the economy, no access to credit, and corporate bankruptcies. Remember, Greece’s finances are still in dire straits. Will it be worth for Greeks to risk these economic setbacks to execute an exit?