Greece would face dire consequences from a euro exit – as its people know

by Vicky Pryce

Observer
May 13, 2012

Far from revealing that Greeks want to exit the euro, the election results send out a clear signal that the policy framework imposed since the crisis began has been wrong and needs to be rethought.

The majority of the electorate supported parties that would prefer to keep Greece in Europe, while delivering a strong rebuke to the two traditional parties of government, New Democracy and Pasok, for having brought Greece to bankruptcy and then being associated with the "austerity memorandum" – the terms of the troika bailout packages.

Opinion polls show that 70% of Greeks want to remain part of the eurozone. Only the parties of the extreme left and right want it to exit. Four-fifths voted for parties that would prefer to keep Greece in, although their views on the price to be paid to achieve that goal differ.

It is not in the interests of either Greece or the rest of the eurozone to reinstate the drachma. An exit from the euro would lead to a run on the banks and the collapse of the Greek banking system. If Greece was shut out of international money markets, the temptation would be to meet the government deficit through printing money, leading to rapid inflation. People's savings would be wiped out. And an effective devaluation might do little for Greece's balance of payments anyway, except possibly through tourism. Poverty would become increasingly widespread.

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