The impact of Greece leaving the Eurozone
As Greece’s financial woes and sinking economy alarm analysts around the world, the talk of Greece leaving the Eurozone has intensified. The Eurozone, comprised of 17 member states using the euro as currency, has its monetary policy governed by the European Central Bank. If Greece leaves the Eurozone because of its current fiscal crisis, the effect on the rest of the world isn’t clear.
Some global analysts believe that if Greece is separated and contained from the rest of the Eurozone before its exit, the impact of the exit would be minimal and not harm the overall stability of the zone. After Greece took a financial bailout in May 2010, many banks moved to limited exposure to the country, leaving Greece’s debt mainly with the European Central Bank.
With the European Central Bank holding Greece’s debt and Greek banks handling more of the country’s money, the financial lines may allow Greece to leave the Eurozone without upsetting the zone’s intertwined economy. The thin financial separations help protect the rest of the Eurozone’s member countries from the risk of Greece’s economy.
A particular scenario, feared by market experts, is the exodus of other weaker countries from the European Union because of Greece’s exit. If Greece were to leave and devalue its own currency, giving Greece competitiveness, other countries would be tempted to try the same route.
The European Central Bank could move to head off such exits by assisting weaker countries after Greece’s exit. Some policy changes may be necessary but nothing that is expected to send shock waves through the member states.
Fall or Rise of the Euro
Greece’s exit could cause a rise in the value of the euro or a decline. Economic experts have predicted both, but a popular theory combines both events. The euro may fall once Greece exits and then stabilize and even go higher within a year of Greece leaving. In order for the euro to stabilize and rebound, however, Greece would have to make an orderly and neat exit.
The fall and rise prediction for the euro relates to Greece’s perceived financial health. Since Greece is in dire financial straits, analysts believe that the euro would eventually benefit from Greece’s exit, even if the currency’s value suffers at first because of fears about the zone’s stability.
Effect on Greece
It’s difficult to predict what will happen to Greece after leaving the Eurozone. The possible consequences depend on many factors, including whether Greece leaves on its own or is forced out by the rest of the zone members.
The impact on Greece’s own economy is likely to be devastating. Greece is at risk of the collapse of the local banking system, which would make it impossible for Greek citizens to conduct everyday financial transactions.
For example, a Greek citizen who needs a loan to purchase a new car won’t be able to get one if the local banking system disintegrates. Business may have to close because of the lack of available credit and the dwindling customer base.
Thank you to Louis Rix, marketing director at Carfinance247.co.uk for contributing this article. Car Finance 247 specializes in helping those with a bad credit history obtain a car loan.