Greece debt crisis: Three experts give their views on Grexit, the euro and how Athens could reinstate the drachma

So is this really Greece’s last chance? We asked the experts

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The Independent Online

It’s always crunch time in Greece. Or at least that’s how it has seemed over thelast month, as the country veers from potential bailout, to potential bankruptcy, with botched meetings, the referendum and a thousand soundbites from politicians along the way.

We are told that this week is Greece’s last chance. Without a deal on Sunday, Greece will run out of money and the banks will collapse.

But it feels like we’ve been here before. So is this really Greece’s last chance? Or is project euro too important to the Germans to admit defeat and let Greece go? We asked the experts.

David Buik, market commentator at Panmure Gordon

Can Greece still avoid exiting the euro?

Grexit is inevitable, it’s an absolute certainty. But it’s a question of  timing. It’ll come in the next two years. Not Monday: the ramifications of Greece being blown away on Monday are more than the EU wants to contemplate.

What will happen to the euro if Greece leaves?

The euro will continue to reel from one crisis to another. Spain is next, then Portugal and Italy. The lenders will do everything to keep the eurozone together because the cost of unwinding the euro in the current economic crisis is unthinkable.

How would Greece reintroduce the drachma?

Germany owes Greece an orderly Grexit because they bullied Greece to join the euro. The performance of the EU politicians has been disgraceful. They’ve failed to face reality. These issues have been hanging around like weeping carbuncles and they’ve just papered over the cracks.

Sony Kapoor, managing director of the economics and finance think tank Re-Define

Can Greece still avoid exiting the euro?

Yes. It can, to my mind that is still the more likely scenario. In an environment of close to zero trust, Greece has to demonstrate that it will take measures it has previously opposed. That demonstration of trust is essential. The resignation of [Yanis Varoufakis, Greek finance minister] was a clear signal to the lenders that Greece wanted to co-operate.

What will happen to the euro if Greece leaves?

In order to work, the euro needs to be like Hotel California –you can come in but you can never leave. Once someone leaves, that door would be open. If Greece left, the EU could either move forward from fiscal integration into a political union. Or it would become fragile. Everyone would ask who was next.

How would Greece reintroduce the drachma?

It would take months, creating further economic costs and political instability. It would be a fraught process. This hasn’t happened before and because in the world we live, the speed at which contagion happens, it’s a very dangerous idea.


Alberto Gallo, macro economist and head of credit research at RBS

Can Greece still avoid exiting the euro?

Yes. Greek leaders need to present a credible plan, one that includes not only tax increases but real reforms to pensions and welfare. They also need to level the playing field of privileges and fight corruption.

But creditors need to realise that Greek debt is unsustainable and Greece needs restructuring. Moral hazard, the problem that other countries may ask for the same “discount”, is not an excuse. There are ways to restructure debt which prevent moral hazard issues: a plan could be structured with a timeline of conditional debt reductions, subject to reforms being completed.

What will happen to the euro if Greece leaves?

The Euro will fall further, and could near parity against the dollar by the end of the year, on expectations that the European Central Bank will ease policy to fight contagion.

How would Greece reintroduce the drachma?

Without an agreement, Greece could issue scrip currency, or IOUs. This would be essentially a parallel currency to the Euro, and history tells us that its value would immediately fall to a half or less than €1.

The Greek government could pay pensions and salaries in IOUs, and the result would be an immediate fall in living standards for the population.

Later, Greece could re-introduce the Drachma, with similar consequences. Countries who exited a currency union or peg since the 1980s suffered a loss in 6.7% of GDP in the year following the exit, on average. Greek tourism and exports may benefit, but they won’t be enough to pull up the economy, being only a fifth and a third of GDP, respectively.