Possible “Grexit” Sparks Potential Economic Crisis for Eurozone

By Aakriti Gupta

Elm Staff Writer

Greece, the country that gave the world philosophers like Plato and Socrates, timeless literature like “The Iliad” and “Odyssey,” mathematic gurus like Pythagoras and Archimedes and among various other paramount things and people, is in talks of receiving its third bailout worth 86 billion euros over the next three years. The Greek economy has been dominating news headlines for a few months now. Its inability to meet its debt obligation made Greece the first developed country in the world to fail the repayment of an International Monetary Fund Loan valued, at 323 billion euros according to BBC News.

Whether Greece should exit the Eurozone or not has been a much debated topic of discussion by investors around the globe. Though the Eurozone leaders have reached agreement over a third Greek bailout in Brussels, would a Greek exit from the Eurozone or “Grexit” prove to be a better decision?

Beginning with the pros, Greece would be forced to impose strict capital controls and devalue its currency by a considerate amount if it leaves the Eurozone. Greece would suffer financial stress and high inflation for a couple of years but is expected to see stronger growth. The devaluation of the currency would facilitate better foreign trade, attracting more countries according to Douglas Elliot, a fellow in economic studies at the Brookings Institution. There is a pool of politicians and economists who believe Greece should leave the euro, most vocally Wolfgang Schaeuble, the German Finance Minister. He believes Greece needs debt relief, which is not legal within the currency of the euro. The country’s economy is expected to grow at a 2.5 to 3 percent p.a rate bigger than most European countries. The major question that remains is should Greece be strong enough to endure another economic crisis at this point of recovery.

Now moving on to the cons, which in my personal opinion are much greater than the mentioned pros. The major drawback of exiting the Eurozone, is that it would throw the country into a deep recession. The exit shall prove fatal if Greece is unable to recover from the recession as the country has an economy that has been bruised time and again since 2009. Switching into a new currency would create some serious ambiguity for the country for a significant amount of time. The exit has a strong negative psychological impact for other Eurozone countries, especially possible exit by Spain, Portugal and Italy in the near future. Euro member nations would be skeptical about future value of the euro, considering the fact that a highly indebted country a.k.a Greece was allowed to exit the Eurozone. A timeout was discussed by various European leaders, but the terms of re-entering the Eurozone are stringent, making the idea of a timeout unsuccessful. Many leaders like France’s President François Hollande, fall into a grey solution as according to him there is “no such thing as a temporary Grexit.”

The Eurozone is primary considered a political project before an economic project. Comparing this situation to the recent Ukraine separation, clinging on each other would be the best decision for the Europeans.

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