Severe cash constraints faced by the Greek Government due to a pretty demanding schedule of interest and amortization payments in the remainder of 2015 have lately engineered a new explosion of sovereign bond spreads and rekindled fears of a GRexit down the road. Such fears have been exacerbated further in late April 2015 as the progress in implementing the February 20th 2015 Eurogroup agreement has proven to be rather slow and the cash-strapped Greek Government is struggling to meet sizeable debt service obligations. As a result, media reports had been speculating on a number of disastrous scenarios, ranging from the imposition of capital controls or the payment of civil servants and various state suppliers with promissory notes to a sovereign default, either within or outside the Economic and Monetary Union. This paper refrains from analyzing the legal and technical complications involved in the materialization of any of the aforementioned scenarios. Instead, it leans on purely economic and political economy considerations to argue that calls for exit are ill advised, potentially involving immense risks not only for Greece, but also for the EMU project as a whole. We take a close look at Greece’s past history of drachma devaluations and their outcome, the current high sovereign indebtedness, and the country’s persisting competitiveness gap vis-a-vis its main trading partners as well as the effects of financial contagion during the ongoing European Sovereign Debt Crisis. We explain why a GRexit would be a hugely suboptimal (and, in fact, a highly dangerous) strategy to address these problems.
via GRexit and Why It Will Not Happen: Catastrophic for Greece and Destabilizing for the Euro by Platon Monokroussos, Theodoros G. Stamatiou, Stylianos Gogos :: SSRN.
A withdrawal of a member state from the EMU due to market pressure has been a rather popular topic in the public debate in recent years. However, the effects of a withdrawal have been analysed quantitatively surprisingly little. Discussions have been concentrated on the crisis countries, but as the Finnish economic difficulties have deepened also on Finland. In the report, the effects of the potential withdrawal of Greece, one of the weakest economies in the EMU, is studied first. In addition we try to sketch the economic effects of a withdrawal of the relatively more bal- anced Finland. The analysis is made using an international econometric model (NiGEM), where the global economy and the individual economies are described in a rather detailed way based on economic theory and past economic behaviour. Benefits and costs, measured with effects on the GDP, of a withdrawal are related in the short and particu- larly in the longer run to the ability of labour markets to achieve sustainable wage agreements and to the ability to keep the financial markets calm.
via A withdrawal from the Eurozone: Some Simulation Studies with the NiGEM Model.
The future of the euro — what happens if a Member State leaves?
The continued viability of the Eurozone as a single currency area is challenged from time to time. Some doubt the ability of Italy and other Member States to remain in the zone, given their difficulties in complying with the applicable budgetary rules. Even the French Prime Minister has commented that life was sometimes easier with the franc. This article considers some of the consequences which may ensue in the event that a Member State felt compelled to seek an exit from the Eurozone, and to reintroduce its own national currency. The Treaty does not legislate for this type of situation and any such attempt would clearly cause severe strains at a political level. But it would also have a major impact on the financial markets. In particular, there may be doubts about the currency in which continuing monetary obligations should be settled. This article seeks to analyze the legal issues which would arise in this context.
via The future of the euro — what happens if a Member State leaves?.
The greek mess shows how debased the whole Euro project has become. Its time to think the previously unthinkable and consider how to unscramble the eggs. Its time to think about how to back out from the Euro.