BNP’s Paul Mortimer-Lee is out with a note contemplating the fallout if Greece were to leave the Euro. It’s titled: The Risks of Making a Drachma Out of a Crisis.The idea is: If Greece quits the euro, there’s no way it will be pretty.
We’re going to bullet his key points:
- GDP would likely fall another 20%.
- You’d see 40-50% inflation.
- Debt/GDP would soar to over 200%.
How does it all go down?
It’s basically like this: if the left-wing SYRIZAT party, headed by Alexis Tsipras, cleans up in the (likely) June election, then Greece will immediately be at loggerheads with the ECB and the rest of Europe. Tsipras does not want to leave the Euro, but he refuses to comply with the current austerity scheme, and actually wants to hire more than 100K civil servants.
So, according to BNP, you have a situation where Greece either backs down, realising how ugly the numbers above would be, or just decides to jump, because at least in their view, they don’t think the Europe is bluffing about not wanting to renegotiate the current scheme.
And of course, Greece leaving the Euro would be no good either. You’d get all kinds of new contagion worries, as people began to play “who’s next” while capital rushed out of peripheral banks. Not fun.