When the blueprint for the Euro was drawn up, leaving was not an option: there were no circumstances under which any member would ever want to leave and therefore no exit route. But the once unthinkable now looks entirely possible.
Any plan to enable Greece to pull out of the Eurozone would need to include a way to nationalise its banks, new restrictions to stop money and assets leaving the country — which could include limits on cash withdrawals from ATM machines — and a restructuring of the vast Greek debt pile.
According to Raoul Ruparel, economic analyst at Open Europe, a think-tank which calls for reform of the European Union, no consideration is being given by politicians to such an eventuality, but he believes a plan should be set out to allow an orderly exit.
“One of the only ways to exit would be through a disorderly default on the debt where the country couldn't make a payment,” said Ruparel. “The banking sector would have to be nationalised as the banks would go under if Greece were to leave to the Eurozone.” Jonathan Loynes, chief European economist at Capital Economists, said that one key advantage of withdrawing from the single currency would be to allow a new currency, which would need a name and have to be printed, to devalue and give the country a fresh competitive impetus.
However, it would then be essential to restructure all debts denominated in foreign currencies or those borrowers — individuals and businesses — would face a huge explosion in the scale of their debt.
Suggestions in early May that the Greeks were threatening to leave the euro unless they were allowed to restructure their debt sparked a rout on the foreign exchange markets.
“There's no doubt there would be a lot of disruption,” said Loynes. “The major objection that people raise about a country leaving the Eurozone is that there is likely to be a major run on domestic banks. One way to stop that would be put to be a freeze on deposits or use capital controls to stop money flowing out of the country”. An additional risk could be that a blackmarket in Euros and dollars might develop while the new currency was created. While there are no exact precedents, currency unions have fallen apart in the past — in the 1990s when the Soviet Union broke up and before the first world war when the Sweden-Denmark monetary union ended. These countries, however, had time to abandon their ties and devise an appropriate exit strategy, a luxury which might not be the case with a Greek departure from the Eurozone. — © Guardian Newspapers Limited, 2011
