'Grexit' or not, Greece will find kicking euro habit hard

GMT 16:23 2015 Wednesday ,01 July

Arab Today, arab today 'Grexit' or not, Greece will find kicking euro habit hard

Graffiti urging a 'no' vote in the looming Greek referendum
Paris - AFP

No matter what the political outcome of the current Greek debt crisis, in practical terms Greece will find it very difficult to turn its back on the euro.

On Sunday the Greek nation goes to the polls in what European leaders say is effectively a vote on whether or not to stay in the eurozone.

While a 'no' vote would not definitely mean the end of Greece's membership, if it does leave the resulting financial crash would likely lead Athens to continue to use the single currency, or dollar, as tender -- following the example of other nations with battered economies.

Ludovic Subran, chief economist at credit insurance company Euler Hermes, said that while Athens could reintroduce the drachma, which it abandoned in 2002, he saw little chance it would abandon the euro entirely.

"It is possible that the government introduces a currency or some script for local transactions, state payments. But that won't work. Everything in Greece converges on the euro, its economy depends on the euro," he added.

In times of upheaval, smaller, relatively poor countries have in the past adopted a strong global currency minted and managed by a foreign central bank to reduce instability.

A prime example is Zimbabwe, which adopted the US dollar in 2009 following six years of runaway inflation that saw the central bank forced to print 100 trillion Zimbabwean dollar notes.
Similarly, the greenback was introduced as the currency of reference in Ecuador in 2000, following hyperinflation and political turmoil. The dollar is now regularly used in all areas of the nation's economy.

The process can also be involuntary, and partial. Venezuelan authorities -- hammered by a slump in the price of its key export, oil -- are fighting to halt black market trading of dollars for the country's bolivar. A plunge in the value of the currency has fuelled an economic crisis as well as rising corruption.

Elsewhere, hybrid use of foreign and national monies exists. In Cambodia, civil servants are paid in riels while private-sector salaries are in dollars, and both currencies are used in daily life -- the greenback most frequently, as residents have more confidence in the US unit.

And in Afghanistan -- whose war-weary economy has seen an influx of dollars from international aid funds -- most major transactions require payment in the greenback, while salaries are paid in national Afghani script.

- Greece's 'two euros' -

Greek Prime Minister Alexis Tsipras shocked global markets at the weekend by breaking off bailout reform talks and calling a July 5 referendum on its creditors' austerity-heavy proposals.

After pulling out of the talks, Athens ordered banks to remain closed, limited access to cash and imposed capital controls.

But since these restrictions do not apply to tourists or funds deposited by Greeks in foreign accounts, there are "in effect two kinds of euros today", said Subran.
One type flows freely as an accessible and strong international currency, while the other is harder to obtain, carefully spent and subjected to restrictions rooted in the nation's economic difficulties.

Closer to Greece, the economies of Kosovo and Montenegro have used the euro as currency for several years, despite not being members of the eurozone and therefore lacking a voice in monetary policy-making.

The first 150 million euros supplied to Kosovo in the process of "euroisation" by the German central bank were transported under armed NATO protection.

Economists have long noted that re-introduction of the drachma would allow Greece to recoup its lost economic competitiveness, but that would come at the cost of a surge in inflation and further short-term upheaval.

And Domingo Cavallo, Argentina's economy minister in when the country defaulted in 2001 and was forced to impose currency controls, warned Greece to stick with the eurozone.

"Exiting the euro would be the worst kind of default for Greece," Cavallo said in an interview with Bloomberg News. "The results will be very bad for Greeks because it will lead to a big drop in economic activity and wages, as happened in Argentina."


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