Article 50 of the Treaty on European Union stipulates that a member country, without any motivation, can freely leave the European Union. And consequently, according to the prevailing view, even the euro. But the same article, nor other of the Treaty, does not refer to what would be the mode of exit and return to the domestic currency. In this climate of chaos in financial markets and regulatory uncertainty, Greece seems more outside than inside the euro.
The desire to escape the eurozone has emerged in a striking way in the elections on May 6, where anti-euro parties played a leading role. The same Alexis Tsipras, the leader of the Coalition of Radical Left (Syriza) who tried in vain to form a new government, is part of the army of those who would see well out of the euro in Greece. But what would happen to Greece (and other EU countries) if Athens will exit from cordons of the Treaty of Maastricht? We asked experts to assess the impacts that such a shock would have on financial markets and the real economy.
How would be Athens without euro
"How all destinations and unexplored roads, and the exit of Greece Eurozone consequences would not predictable based on past experience – explains Andrea Ragaini, for Banca Cesare Ponti -. If the world was to "compartmentalize" the exit of Greece from the Group of 17 does not lead to significant problems: the weight percentage of the greek and European GDP is less than 3%, the flow of international trade is irrelevant and also the contribution European governance is not decisive. Today's world is not made in compartments of living expectations and financial markets. The risk is that individuals are another "candidate" output on which to focus the action bearish, Spain and Italy could be the first to be involved in the fire of speculation. There are so predictable in our view the effects chain output of Greece from the euro. We can safely say, however, that internally Greece would live years of economic chaos and financial, and probably also of social unrest. We therefore believe that negative factors outweigh positive aspects.
According to Vincent Longo of Ig Markets “the country would find itself starting from scratch, with an economy entirely to rebuild without aid or funds from outside. Moreover, the country could be isolated from trade with the rest of the area. Do not overlook that would be seriously threatened the credibility of the country and this would complicate the ability of Athens to attract capital from abroad. On the other hand, Greece could enhance the ability to independently decide its monetary policy, which at this time of crisis could be guided towards a devaluation of local currency, the drachma, to restart the economy. In this scenario we expect that the recovery that the country could have would be much slower and more painful than the rescue provided by the EU".
An exit from the euro in Greece? "In the short term, it entails many difficulties: inflation and interest rates soaring with great difficulty to renegotiate loans from abroad – stresses Vedani Gabriel, managing director of FXCM -. A condition that would have an effect on civil society, think of the families of the mortgage. In the long run, however, the decoupling of the euro could also give vent to a Greece that is a major exporter. Among other advantages Athens would have more freedom to maneuver on public spending and taxes. But it is difficult to determine whether advantages outweigh the high costs of exit".
Output costs are technically unpredictable second Massimo De Palma, head of asset management for Swiss & Global Asset Management Sgr. “It is inevitable that there will be further out from the euro haircut with strong consequences on the holders of the debt that is more and more domestic. And then there were major technical problems associated with the reintroduction of the drachma".
Tommaso Federici, responsible management of Banca Ifigest, has no doubts: "The positive factors would be only one, greater competitiveness resulting from a write-down, presumably by over 50% compared to euro and dollar, but the new drachma would have little impact given the low propensity to export and low industrialization of the country. Not to mention any duties that the eurozone countries could put on the Greek goods. Obviously the 110 billion euros of the first bailout could not be returned. Conseguences would be many, first of all the subsequent Bank Run or stroke counters. Among other negative effects of increased flow rate would halve the value of all assets in the country, the impossibility of being able to consume and purchase raw materials and goods not included and not produced in the country because they are more expensive by at least 50%, impossible for a considerable time to come back on financial markets to finance public and private investment”.
According to Leonardo Bloch, head of investment securities Prism sgr, "while the assembly of the single currency has been an exercise technically relatively simple, its partial or total removal would be a real puzzles. As an example, consider the issue of currency to rename the external liabilities. While it is undisputed that the State is endowed with the legal weight to rename all its debt in domestic currency, is also uncertain whether issuers and borrowers may have right to carry out a similar conversion in respect of foreign creditors. This would lead to almost unsolvable problems in asset / liability management of businesses – especially those of the banking / finance – or alternatively expose international creditors to foreign exchange losses of significant magnitude. Any outgoing Greek euro would have the thankless task of defining the technical guidance of such processes. It is indisputable that already own the defection of a component would inevitably result in a favorable repricing of risk of all euro area economies are less stable.
The consequences for other countries in the euro
An exit of Greece would intensify in the short term, in opinion of experts, the uncertainty on the markets and the securities of peripheral countries. "We are already noticing – continues De Palma – a return of risk aversion. Greece without a euro can also be seen as a positive factor because the Eurozone would get rid of its weak link, but at the same time you should be watching the other rings, Portugal, Spain and even Italy, which could be affected by a further enlargement of spreads”.
" The greatest danger is in my opinion the perception that the same could happen in Ireland, Portugal and especially Spain and Italy, the so-called contagion risk – Laura Tardino, strategist di Bnp paribas investment partners, argues -. I think it will "only" a perception – with potentially very negative effects on financial markets, spread widening and descent dell'azionario, already we see these days, and also reflected on the real economy, lending to businesses and consumers at the least, – but actually I do not think that Germany permits these economies as important in the European context. It would mean admitting the failure of the European project. However it is not difficult to imagine what could happen if these countries were out of the euro: devaluation and inflation with a significant increase in corporate bankruptcies and impoverishment linked to the lower purchasing power.
“Euro would emerge stronger because it would get rid of one of the countries most vulnerable and problematic that both cost the European community, on the other hand, would increase tremendously the pressure on other weak countries, Spain, Portugal and Italy ", agrees Vedana.
In short, the experts agree that an exit from the euro in Greece (largely supported by the current political forces) would cause chaos, unpredictable, especially for Greece As for the countries of the less virtuous. "The only benefit to the present condition – said De Palma – is Germany, which at current rates restructuring is debt free and is increasing exports”.
Is euro the problem of euro?
What solution to the problem then? "An economy in difficulty can not live with a strong currency. The Argentina it was an example. If the euro depreciates, Italy and even France itself will be destined to fail. It's only a matter of time. In this sense, the victory in France of socialist Hollande should be viewed positively, because it could push for change: Eurobonds, ECB with a dual mandate and a quantitative easing (printing money, which the ECB, ed) finally would undervalue the euro – explains Nicolò Nunziata, strategist at Jc & Associates -. Greece, like Portugal and Ireland should quit, simply because the other side of the penalty will never have more than the current conditions the ability to grow. Ireland itself is being saved only for the low rate of foreign companies, but in perspective in a context of greater integration will have to give. The important thing is that the output takes place under the auspices of the International Monetary Fund. There would be a devaluation of the euro and probably would require a restructuring of debt, already fully discounted. At that point, as happened in Argentina, could leave.
One output of these countries to other countries – continues Nunziata – could even be positive, especially if accompanied by those measures referred to above. The only risk is the resistance in Germany, but I am convinced it will be exceeded, otherwise it will continue so inevitably to the dissolution of the euro or the output of Germany, which would be for all the best hypothesis. Because today it's as if Real Madrid were playing in Serie B”.