Peering into the euro abyss
Dire warnings mark Greece’s potential exit from the euro
As Greece looks to new elections to form a government on June 17, speculation abounds on the damage that will be caused to the country's economy and social fabric if Greece leaves the eurozone.
Most respected analysts are talking of a doomsday scenario if that should happen, with the disadvantages of being outside the euro far outweighing any advantages.
An economic meltdown is forecast, with Greece in lockdown, cut off from international trade and the purchasing power of Greeks cut to ribbons.
Experts predict the Greek currency would fall anywhere between 20 and 50 per cent in value, and in all the uncertainty, one thing is for sure - by the end of it, the average Greek citizen would be considerably poorer.
Neos Kosmos spoke to Michael Koutrouzas, senior financial adviser with Bell Potter Stockbrokers, who says a Greek exit from the eurozone has the makings of a disaster of unimaginable proportions.
"If Greece was to leave the euro there would be a closure of its border, there would be no flows of capital, the cost of foreign goods would escalate. It would take years to recover.
"Greece's Gross Domestic Product would drop dramatically, there would be no money in the system, higher unemployment, less taxes would be raised and the cost of living (CPI) would sky-rocket. International trade would cease.
"There is chance Greek banks could put a limit on withdrawals, and for overseas customers those limits might well be higher."
Mr Koutrouzas' predictions lead him to conclude that there is only one responsible step to be taken by the Greek electorate as they head to the polls once again.
"I hope the people will correct their vote and allow the formation of a government that will keep Greece in the euro. It would be an absolute disaster otherwise."
The Australian dollar fell below 99 US cents this week amid reports of widespread bank withdrawals in Greece and Spain and fears that the eurozone crisis will worsen.
Analysts say further speculation surrounding Greece may continue to drive the Australian dollar lower, mostly through the strengthening of the US dollar as funds are ploughed into US treasuries.
With little exposure by Australian banks to Greece, the biggest risk is a freezing of global credit markets as money market investors pull funds from Europe.
With the growing contagion fears in Europe coupled with weak US economic data, the Australian sharemarket experienced a choppy week. Thursday marked its third straight losing day with the benchmark S&P/ASX200 index falling 8.1 points, or 0.19 per cent, to 4,157.4 points.
Leaving the euro: three steps to the exit
If Greece leaves the euro, analysts predict that the consequences would include
life savings and incomes in Greece being decimated in value. One thing is
certain - an announcement to leave the euro would come as a surprise.
To prevent money haemorrhaging from the country, the government would make the
announcement without any warning. Twenty per cent of the deposits in Greek banks
have left already. Greeks have withdrawn as much as 700 million euros ($898
million) since the election.
Step 2 As the announcement was made Greece would
effectively close its borders and shut down the entire banking system for
Step 3 Euro notes in circulation within Greece would be stamped Greek
euros, as a temporary currency, and a process that might last months would
begin, replacing the Greek euros with drachma. The value of the Greek euro would
be less than the Eurozone euro and could only be spent internally.
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