Wall Street Journal
May 18, 2012
As Greece girds for elections next month that could lead to its exit from the euro zone, economists are acknowledging an unsettling reality: No one knows what the bill will be.
A wide range of potential price tags has been reported, anywhere from €150 billion to €1 trillion euros ($1.27 trillion). But none of these are comprehensive, nor are they meant to be—they don't, for instance, weigh the cost of an exit against the cost of avoiding one. By comparison, the 2008 Troubled Asset Relief Program, known as TARP, was a $700 billion program initiated in response to the U.S. financial crisis.
The amounts could vary sharply depending on how Greece walks away, with each scenario introducing its own set of uncertainties. There is no real precedent for economists to analyze, as prior defaults or devaluations are very different. And any signals from investors are ambiguous: It's impossible to isolate Greece's contribution to stock-market gyrations this week from other factors.
Any number "for the costs would involve a huge amount of error," says Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning Washington, D.C., think tank. "There is such a wide range of uncertainty around the exact course of events." More important, he adds, a Greek exit from the euro would spur policies in response, from the European Union and from member states. Predicting those is more a matter of politics than economics.
"It goes beyond our rationality and touches on our behavioral and psychological aspects," says Constantin Gurdgiev, professor of finance at Trinity College, Dublin.
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