Eurozone debt crisis If Greek exit from the euro WhatHappend ?
Greece's decision to call a second, anti-austerity election has taken thecountry one-step closer to a dangerous exit from the eurozone.
How would Greece leave the euro?
No-one knows for sure because it would be unprecedented. There was nolegal mechanism put in place for a country to exit the eurozone when thesingle currency was created. The most likely scenario would involve theGreek authorities privately agreeing a date with the rest of the eurozone,the European Central Bank, and the International Monetary Fund, toformally exit. They may decide to announce the decision after themarkets have closed, possibly on a Friday evening, to give investors achance to digest the news.
What would happen to the currency?
Greek euros would be converted into a new currency, probably thedrachma. Euro notes would be stamped while drachmas were beingprinted. After setting an initial conversion rate for the new drachma, atsay 1:1 to the euro, the exchange rate would be dictated by currencymarkets. The drachma would immediately fall sharply.
What would happen to the country's debt?
Domestic debt would be converted into drachmas. A complicated legalrow over whether Greek's external debts would remain denominated ineuros or be converted into cut-price drachma would ensue. Money owedby the Greek Government to its bondholders, and money owed by Greekbanks to the European Central Bank, would be the subject of renegotiation and restructuring. Greece would continue to be locked outof capital markets, and would require new IMF loans against freshcollateral.
What would happen to the banks?
Capital controls would be put in place to prevent a chaotic run on Greekbanks. Money is already being withdrawn from Greece and investedelsewhere, or simply stuffed under mattresses. The ECB liquidity tapwould be switched off, and banks would not have access to wholesalemarkets. Greece would have to recapitalise and potentially nationalise itsbanks.
How much would a Greek exit cost?