Opinion
Six myths about the Greek crisis
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...there is an opportunity for improvements that can be achieved by a much stronger Greek government that would include all pro-European parties.
By Nicholas Economides
The framework of the agreement between Greece and its creditors is very tough on Greece because it was signed at the worst possible moment for Greece — after a five-month erratic negotiation, after the disaster of the referendum, with closed banks, capital controls, and very low withdrawal limits. But since the negotiation will continue through August, there is an opportunity for improvements that can be achieved by a much stronger Greek government that would include all pro-European parties (including the pro-Europe part of Syriza).
Here are six myths about the current situation in Greece and the reality in each case:
Myth 1: A 'Grexit' is better than the agreement with creditors.
If a "Grexit" (Greece leaving the euro zone) happened, Greece would face a long-term closure of banks with capital controls and withdrawal limits, and depositors would lose at least 50 percent of their deposits for two reasons: First, under a Grexit, the Greek banks would go bankrupt and a de facto haircut (loss) on deposits will be imposed. Second, depositors would face further losses in the conversion to the new currency and inevitable subsequent devaluation. Unemployment would skyrocket. Importers would face huge hurdles and there will be significant shortages. The new drachma would be a heavily devalued weak currency resulting in inflation and widespread poverty as Greeks would afford only half or one-third of their present purchases. Greek politicians would print large amounts of new drachmas, further increasing inflation, and nullifying any benefit to exports from the devalued new drachma.
Read the full article as published in CNBC.
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Nicholas Economides is a Professor of Economics.
Here are six myths about the current situation in Greece and the reality in each case:
Myth 1: A 'Grexit' is better than the agreement with creditors.
If a "Grexit" (Greece leaving the euro zone) happened, Greece would face a long-term closure of banks with capital controls and withdrawal limits, and depositors would lose at least 50 percent of their deposits for two reasons: First, under a Grexit, the Greek banks would go bankrupt and a de facto haircut (loss) on deposits will be imposed. Second, depositors would face further losses in the conversion to the new currency and inevitable subsequent devaluation. Unemployment would skyrocket. Importers would face huge hurdles and there will be significant shortages. The new drachma would be a heavily devalued weak currency resulting in inflation and widespread poverty as Greeks would afford only half or one-third of their present purchases. Greek politicians would print large amounts of new drachmas, further increasing inflation, and nullifying any benefit to exports from the devalued new drachma.
Read the full article as published in CNBC.
___
Nicholas Economides is a Professor of Economics.