Leaving the Eurozone would be very difficult

Greek euro.pngLast December, the blog raised the question of how a country like Greece could actually leave the Eurozone. Many people believe this is inevitable. But how would the practical issues be solved?

Now Wolfgang Münchau has taken up the challenge in the Financial Times. His research suggests there are only two possible exit routes:

• A Treaty change, to reverse the Lisbon treaty
• To leave the European Union (EU) itself under Article 50

Münchau rules out the Treaty change option as being impossible. The Lisbon Treaty took 9 years to complete. Agreeing to leave would similarly need an inter-governmental conference, plus agreement by all national parliaments, and national referenda.

So leaving the EU itself is the only practical option.

If, for example, Greece left, then it would lose all its agricultural subsidies and structural funds for highways etc. It would also have to redominate all its contracts from euros to drachma, and default on all foreign contracts.

And, of course, the currency change would have to be done within days, if not hours. Otherwise, Greeks would simply move their money abroad, and the economy would collapse.

The end-result would therefore be chaos. Those owed money by the government or companies would sue to try and recover their losses. Investors would also pull out of other PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) where a similar disaster could take place.

And even then, there would be no solution to the problem of euros, like that pictured, which have Greek origin. Would these still be accepted in other Eurozone countries? Many shops and businesses might well not want to take the risk of default. This would create more chaos.

Münchau concludes that those who argue that a country could easily leave the Eurozone are fooling themselves. He believes that there is no “situation in which an exit can be effectively and voluntarily negotiated”.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.


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