May 14, 2012
Europe's ruling elite is now openly talking about whether Greece might leave the euro, breaking a two and a half year taboo. German chancellor Angela Merkel and EU president José Manuel Barroso were among those saying that if Athens could not abide by the rules, Greece would have to leave. We asked three experts to analyse the potential consequences
Nick Parsons, head of strategy at National Australia Bank
The choices facing Greece and its people are deeply unattractive. On a three- to five-year time horizon, there is no policy option that will turn a bad situation into a better one, and the likelihood is that it will become even worse for many of its people. If Greece stays in the euro it faces a long, slow depression in an effort to remain solvent. If it exits, it could see the collapse of the domestic banking system, the decimation of private savings and a crippling increase in the cost of imported goods and energy.
Greece could claw back some competitiveness through devaluation, making its exports much cheaper than they are currently. But the markets would demand devaluation, and then some. The drachma was fixed at 340 to the euro when Greece joined the single currency. But if a new drachma is introduced at parity with the old currency, then €1 would quickly buy about 1,000 drachma, or possibly even more.
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