The media is again intensifying the speculation of Greece exit from the euro. I think this is how the market works, and it is simply looking for someone to attack and by doing so to make money. This is cruelty of the MARKET – big fish eats small fish. However, are there any incentives for Greece to exit from the euro currency?
If Greece exits, than it will first default on its debt. Currently Greece has debt in the range of half trillium euro dollar. Greece will need generations to re-build the credibility to raise money from the market; without this loan credibility, the economy will be in recession for years to come. Second, Greece will print its own money, and the currency will de-appreciate immediately for a significant percentage so that it can improve “competitiveness” overnight. However, Greece economy includes 85% service and ONLY less than 15% related to PRODUCT, among which is only little stuff for export. De-appreciating its currency really does not improve its “competitiveness” at all simply because there is no stuff for export. Among its 85% economy, significant amount is from tourist services. If the country is in default and its economy is in bad shape, who is willing to visit there? Not to mention social unease due to unstable political situation and high unemployment.
So will euro nations decide to kick Greece out? The answer is also not likely. Some EU nations are not happy with Greece in terms of structure problems in its economy, but kicking Greece out and letting it default will create a heavy burden to the banking systems in the zone. I think a most likely situation is that Greece will have to give up some fiscal sovereignty in exchange of introducing Eurobond and/or ECB assuming lender of last resort for all euro-zone nations.
If that’s true, euro zone will emerge as stronger political and economic zone.