The discussions about the Greek crisis are continuing and now the European authorities really started to consider the “Grexit” hypothesis. The Quantitative Easing so desired by Mario Draghi depreciated the European currency and, combined to the fall of the oil price, is supporting the recovery in Europe, making more competitive the European firms and restarting their export.
Despite this breath, the Greek matter is still serious and the creditors’ deadlines are hardly testing the resources of the Hellenic Country. The united currency is an important step on the European integration way and the disintegration of the Euro-area could have adverse political and economic effects.
The question is: what would happen if Greece leaves the Eurozone?
We have some examples in the history of Countries that left monetary unions. The Italian newspaper Il Sole 24 Ore lists, in an interesting article, the “monetary divorces” in Ireland (1979), Slovak Republic (1993) whit the secession from the Czech Republic, Argentina (2002) which left the peso-dollar parity.
We can suppose that, thanks to a weak Drachma, the Greek economy and the employment situation could have a great impulse, foreign companies would be driven to invest in Greece, the Greek goods would be competitive and the exports would grow, at least until a commercial balance so positive do not bring back the Drachma close to the parity with the Euro.
But collateral effects could be worse. The imports would be immediately more expensive and the Greek central bank could decide to raise the interest rate to fund the reforms, as seen in Germany after the 1989, when the Bundesbank had to finance the reunification of the “two Germanies”. The consequences were depressive for the European economies, there was the contraction of the demand and the other Countries, to avoid capital outflows to Germany, raised the interest rates importing deflation.
In the Greek case we can hypothesize a similar scenario and, due to the difficulties afflicting Europe to overcome the economical crisis, an other contraction of the demand would have very serious repercussions all around the Old Continent.
The Grexit hypothesis would be negative for the Germany too, the first exporter in Europe, which should deal with a commercial competitor able to devalue its currency as it wants. So, the Angela Merkel’s threat may be a circumstantial bluff in the negotiations, the President of the European Commission Jean Claude Juncker said that this event would be devastating and that “negotiations will continue at a higher technical level”.