Greece: The morning after
- By Sumantra Maitra
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E-mail China.org.cn, July 7, 2015
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Supporters of the No vote react after the first results of the referendum were released at Syntagma square in Athens, July 5, 2015. Greece's lenders in Euro zone will hold a conference call Monday morning after the first official results of Greek referendum showed a strong lead of NO on their offer, said the European Commission in a statement late on Sunday. [Xinhua/Marios Lolos] |
The victory of the No camp, which will now make negotiations almost impossible in old terms, would mean the Greek banks will run out of cash. There won't be any money in the ATMs and government functioning will stop, the market will crash and banks will stay closed. There will also be a global equity sell, prompting a massive currency upsurge for countries like Germany, the United States and China. There would be even more hoarding and stocking of regular goods, as euro continues to weaken, until the crisis is ridden out. Greece being officially in IMF arrears, European officials will now start preparing for the eventual Greek exit, by starting to tell their own population that the money given to Greece might never come back.
What about Greece then? In the highly likely scenario of a Greek exit from the Eurozone, Greece obviously would not be able to continue with the euro as their currency. They would have to reintroduce the drachma. Basically, the first step would be to make laws, which would convert and evaluate all state assets and liabilities to be quantified in drachma, and then start printing money, and banks would need to reprogram. That would lead to an immediate devaluation and depreciation of the drachma against the euro, and it would trigger massive inflation, market volatility and capital outflow. Unless more capital controls are imposed, triggering lower business, imports will be rationed and controlled and companies will go bankrupt. On the bright side, competitiveness would increase and tourism would increase, as Greece would be so much cheaper.
Europe on the other hand, will lose real money…around over 300 billion euros. They will be extra careful to lend money now, which doesn't sound good for other ailing economies, like Portugal and Spain and Italy. The uncertainty will inevitably gnaw at the competitiveness of the euro against the dollar. The political ramification is even worse. From the ultra-left and extreme right wing Eurosceptic parties, starting from Podemos in Spain to UKIP and the Front National in England and France, to Denmark and Austria and Italy, everyone is rejoicing this vote already. The disintegration movement in Europe will inevitably gain steam.
I honestly don't think the Greeks understand what they just did. A bomb has just been dropped. The body count has just begun.
The writer is a columnist with China.org.cn. For more information please visit: http://china.org.cn/opinion/SumantraMaitra.htm
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