Avoiding the very worst: Gradations of Grexit

by / Thursday, 09 July 2015 / Published in Economy

UK Only Article: 
standard article


The new Conservatism

Fly Title: 

Avoiding the very worst


Could a parallel currency within the euro zone be possible?

ACCORDING to IMF estimates made in 2012, any currency with which Greece replaced the euro would quickly halve in value. Greece would lose a prompt 8% of GDP and see inflation surge to 35% as the cost of imports rocketed. Confidence would be battered and confusion would reign, exacerbated by the months it would take for the new currency to come into circulation. This is all probably as true now as it was then.
For the rest of the euro zone the direct effect would be much less—but still appreciable. Official loans to Greece from the rest of the euro area are close to €185 billion ($204 billion); they would have to be written off. The Bank of Greece owes the European Central Bank (ECB) over €125 billion borrowed to finance capital outflows (“TARGET 2” debt) and to issue extra cash, according to Barclays, a bank. And then there’s €27 billion of Greek sovereign debt held by the ECB. The tally would be close …<div class="og_rss_groups"></div>
Source: The Economy