12 DEVASTATING CONSEQUENCES IF GREECE RETURNS TO THE DRACHMA

Wednesday, July 01, 2015

The consequences of return to the drachma would be:

1.       Rapid devaluation of the drachma against other currencies (the rate might surpass 1,000 ???/1€). An attempt to tie the drachma to the euro and lock the conversion rate is doomed to fail (as it failed in the case of Argentina), because of the huge capital flight and depletion of foreign exchange reserves.

2.      The devaluation will lead to skyrocketing inflation at levels equal and greater than 40 percent, further limiting thereby the purchasing power of citizens.

3.      Capital flight and a sharp increase in non-performing loans will be the coup de grace for the weak country's financial system, which would collapse, "drying" the real economy.

4.      In such an eventuality the wage and pension freeze payment will be inevitable for a while until the partial restoration of liquidity. The consequences from social unrest that will likely follow are unpredictable.

5.      Gross domestic product will likely shrink to about 2/3 of the current level.

6.      The public debt of Greece, totaling 322 billion euros, will increase automatically depending on the amount of the depreciation of the drachma, multiplying our borrowings.

7.      Even if, after bankruptcy, a partial debt restructuring follows, it will not be painless. It will be accompanied by a new rescue package (only from the IMF now) and very burdensome fiscal adjustment measures.

8.      There will be an equal increase of private debt through the skyrocketing of lending and depositing rates in an effort to control inflation. Higher interest rates will also make it difficult for businesses to raise capital.

9.      Suffocation of import business due to a weakened market, the devaluation of the drachma and the obvious lack of credit.

10.   Failure of imports will bring shortage of essential items on the market since, as we know, Greece is not self-sufficient in raw materials and meets its needs (eg. wheat, milk, meat) by imports from foreign countries.

11.    Invasion of predatory foreign investors, who will acquire companies, property, and public property at derisory prices. It will lead to a sellout of the country, now claimed by the proponents of the drachma.

12.   Diplomatic and economic isolation of Greece, who, being in a very difficult situation, will not be able to follow geopolitical developments in the region, as well as any challenges by its neighbors.

 
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