The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Wednesday, February 15, 2012

If Greece left the Eurozone - A Failed State in Minutes?

Joe: I was wondering what would happen if Greece left the Eurozone, below is the answer from Daniel Knowles at the Telegraph. By the way a “Swabian housewife” is German woman famed for her thriftiness.
SWABIA: swāˈbēə, Ger. Schwaben, historic region, mainly in S Baden-Württemberg and SW Bavaria, SW Germany. It is bounded in the east by Upper Bavaria, in the west by France, and in the south by Switzerland and Austria. -Bob

Daniel Knowles

Daniel Knowles is an Assistant Comment Editor at He writes about politics and economics and is @dlknowles on Twitter.

If Greece leaves the euro, it'll be afailed state in minutes

If Greece leaves the eurozone, the devaluation wouldn't be a helpful 30 per cent or so, as it has been in Britain. It'd be a gut-wrenching tumble of 80 or 90 per cent. Instantly, the price of anything imported would leap up five or six times over, which, together with the money printing, would spark hyperinflation. Capital controls wouldn't be enough to stop it: the Greek government would probably have to take over the entire economy, rationing imported goods. Except that if it had that sort of power, it wouldn't have had so much trouble introducing austerity measures. The country would become a failed state in about twenty minutes.

Don't believe me? Well, UBS has just published an excellent research note full of numbers. Here's what they say:

There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year

Oh, and they add this: "It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war".

The FT notes today that Germany is acting like a "Swabian housewife, concerned only about her savings when the village she lives in is set on fire". Actually, it's worse. Germany and France are instead stoking the fire with empty threats. Whatever happens, they're going to bail out Greece – this is just posturing over the terms. As Margaret Thatcher used to say, there is no alternative.

Book: There Is No Alternative: Why Margaret Thatcher Matters

Claire Berlinski

No comments:

Post a Comment