Is Greece Leaving The European Union?

What if Greece left the euro? The difficult negotiations between Athens and its European partners make resurrecting the specter of a ‘Grexit’, an unprecedented scenario with multiple implications for Greece, Europe and the financial system.

Is a Greek exit from the eurozone?

The European Commission insists that a country’s membership of the monetary union is “irrevocable”, based on the European treaties. However, “although no clause” stipulating that a country leaving the euro zone, “it is possible to find a legal construction” permitted, says Janis Emmanouilidis, the think tank European Policy Center. An output of the eurozone could pass for an exit from the European Union, yes possibility is contemplated by the treaties. According to a scenario cited by Jacques Delors Institute, and openly debated in Germany, if Athens fails to meet its commitments, the eurozone and the European Central Bank (ECB) could force him out, by restricting the possibilities for funding of Greek banks forcing Athens to introduce a parallel currency.

For now, this scenario does not seem possible. The ECB extended on Wednesday and, for two weeks, the emergency lending mechanism that keeps alive the Greek banks.

The Jacques Delors Institute includes two other scenarios:

– A voluntary decision of Greece to issue its own currency devalued against the euro, to finance social policy and anti-austerity promised by the new Prime Minister of radical left, Alexis Tsipras, elected in late January. However, the Greek majority support its membership of the euro and such a scenario, also not on the agenda of SYRIZA.

– A euro exit “by accident” after a bank run, leading to massive withdrawals and the imposition of capital controls to prevent bleeding and, finally, to the issuance of a parallel currency.

What are the consequences for Greece?

Greece would be in default on its debt and would have no access to financial markets. The country would be at the mercy of or forced to seek financial aid from China or Russia ‘vulture funds’, which would change the geopolitical situation in Europe. However, they also have the freedom to devalue its currency. The French president Valery Giscard d’Estaing believes that the Greek economy can only recover with a devalued currency, therefore, outside the euro.

What are the implications for the eurozone?

Analysts believe that the consequences would be far less dire that if Greece had left the monetary union in the worst of the crisis in 2012, and since then has implemented the eurozone rescue fund, the European Stability Mechanism, and the ECB is more vigilant in protecting the single currency.

However, a Greek exit would be costly for States with Greek debt, whose return would have to give full or in part. And one can not exclude a domino effect. “When Spanish Portuguese families or companies to see how the euro became drachmas, withdraw money from their accounts and may cause” a run on deposits, writes US economist Barry Eichengreen, last weekend in Die Welt .