What are the implications

admin Staff asked 9 months ago

What are the implications

What are the implications of Greece leaving the Euro for Greek and German economies?

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1 Answers
admin Staff answered 9 months ago

If Greece leaves the Euro and issues its own currency, its worth would be drastically less than the Euro. All banks and companies with foreign debt denominates in Euros would be unable to pay them and would have to file for bankruptcy. This would lead to a deeper recession. The IMF estimates that GDP would shrink by more then 10 percent in the first year. But after 1 or 2 years of that, the picture gets a lot better and the economy will grow faster. This is because the deviated currency will make import expensive and would force Greeks to buy domestic products. The country’s exports will be cheaper and more attractive to foreign buyers as well. Inflation may soar and ordinary families could struggle to afford the basic things needed to live.
According to the Bank of international settlements, if Greece had defaulted, then the lenders would have lost $ billion at a percent recovery rate.
So the pain would fall mainly on the governments. It would be a lot. According to one report, “The Fitch rating agency estimates public sector claims against Greece will top $ 450 billion this year. Germany’s exposure is in the tens billions of dollar range – -about the German governments net borrowing of 2012.”