BBC: In the long term a "Grexit" might make Greece more competitive, but the immediate cost would be huge

30/12/2014

By Laurence Peter

Syriza says it wants Greece to stay in the euro - as do the traditional mainstream parties in Greece.

Germany's Chancellor Angela Merkel and other EU leaders have staked much credibility - and spent billions - on keeping Greece in.

But there are fears of a crisis of confidence in the Greek economy. In the worst-case scenario there could be a run on the banks, with Greeks trying to get their savings out of the country. Cyprus suffered such a crisis in 2012 and had to be bailed out.

The risk is that a Syriza-led government could refuse to repay the €17bn of debt due in 2015, triggering a default and exodus of investors.

The ECB might then refuse another bailout, putting impossible pressure on the Greek central bank to shore up domestic banks. In such a crisis the only solution might be for Greece to leave the euro. Many analysts agree that a disorderly exit would be catastrophic for Greece, fuelling inflation and intensifying hardship as imports would rocket in price.

In the long term a "Grexit" might make Greece more competitive, but the immediate cost would be huge and it would certainly undermine confidence in the euro.

Πηγή