Greek Bank Says Euro Exit Would Have Dramatic Effect

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As the country heads to a new round of parliamentary elections in mid-June, the National Bank of Greece said Tuesday that a eurozone exit "would lead to a significant drop in living standards for Greek citizens."

 

The country's top lender said that Greeks would lose more than half their income and the value of the reinstated drachma currency would fall 65 percent. In addition, it predicted that the Greek jobless rate would jump from 21 to 34 percent while inflation skyrockets from 2 to 30 percent.

A coalition² government of Greek socialists³ and conservatives agreed earlier this year to impose a sweeping⁴ austerity plan in exchange for billions of dollars in new rescue funds from its European neighbors and the International Monetary⁵ Fund. But the country's fractious political parties were unable to forge a new government after a splintered election earlier this month, leading to the new vote next month.

 

European leaders repeatedly have said they want Greece to remain in the 17-nation currency union. They also have said the Athens government must adhere to the austerity plan or it won't be handed any more rescue funds. Recent political surveys show the conservatives leading, with an anti-bailout party, the radical⁶ left Syriza party, trailing close behind.

 

One international finance expert, Andreas Hauskrecht of the Indiana University business school, said he sees Greece exiting the eurozone no matter how the election turns out.

 

"The likelihood is close to 100 percent, and it will happen in 2012 most likely. I wouldn't be surprised if it happens over the summer," said Hauskrecht.

 

He said that even if a new coalition government is formed that supports widespread wage and pension cuts and elimination⁷ of thousands of government jobs, it won't be enough to prevent a euro exit.

 

"The reasons are simple. Let's take the most optimistic way. They are able to form a government after the election June 17th. They are able to hold to their promises on the fiscal⁸ side and they still will default because the Greek economy is shrinking so quickly that the numbers that were the basis for the original plan to cut fiscal deficits⁹ are insufficient¹⁰. So basically, they are in a vicious circle and it's only a question of time until they will have to default. The less optimistic say they cannot build a stable government, which is much more likely, and then they will default already in July 2012," said Hauskrecht.

 

Hauskrecht said that despite public pledges of support for Greece from other eurozone nations, Germany and more economically stable countries have grown weary of handing the Athens government more assistance.

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