It appears a Greek departure from the Euro would be a surprise to the Greeks but not to everyone else. If it does happen what would be the impact on them and the rest of us?
As I believe economic problems should be analyzed in terms of the physical side of the economy lets start there and then look at financial concerns.
Following an exit from the Euro the Greek standard of living would depend upon the quantity of goods and services the Greek people would be able to produce divided by the number of people. This does not mean they would have to be self-sufficient as they would still be able to trade.
There could be a problem. If they were currently producing enough for their desired standard of living they probably would not now be in a crisis.
There are a number of factors which might reduce or improve their standard of living.
Some of the outside money they have been receiving was probably used to import goods and services. This would probably be lost although if things are really tough they might be given some aid.
If there were to be massive emigration (not a sure thing) things would be better.
The standard of living could be reduced by an obligation to repay some of the current debt to foreigners. This would be because money repayments would be followed by goods and services.
They would also be adversely affected by what happens in other countries. If things get worse elsewhere the number of tourists could drop which would reduce the foreign money they have for outside purchases.
On the financial side it appears there will be a massive write off of debt which means a lot of people will lose a lot of purchasing power. A lot of people will be a lot less rich than they thought. Both in and out of Greece this will fall upon individuals in the form of lost or devalued pensions or investments.
The writing off of debt will also mean a loss of money supply both in and out of Greece. As there appears to be a lot of unused credit around this might not be too serious a problem
If Greece leaves the Euro its government will have to manage the replacement money and will have to be very careful not to create too much. The consequences of too much money is inflation, maybe even hyperinflation. Inflation is a loss of purchasing power just like the writing off of debt. It can be a sneaky way for governments to steal from their people.
If I were a Greek politician I would want to write off all debt and start over with a national exchange trading system as outlined in my essay “LETS go to market”>
In working on this post I am very grateful I was born and raised in Western Canada. However, I have to recognize our turns is probably coming soon.
Filed under: General | Tagged: crisis, debt, Economics, emigration, Euro, foreign money, Greece, Greek, imports, inflation, money, money supply, purchasing power, standard of lliving, tourists, trade | Leave a comment »