Yanis Varoufakis and Joseph Stiglitz
Greece: Default or Grexit?
by Yves Smith, Naked Capitalism
Posted on April 17, 2015
A critical issue to keep in mind is that a default does not bring Greece relief. The prospect of a Grexit (remember, it’s rational for Greek depositors to prepare for the worst) means an acceleration of the ongoing bank run. The imposition of capital controls would further fray nerves domestically, given that polls show majority opposition to leaving the Eurozone. Ongoing cash hoarding plus uncertainty will further weaken the already very sick Greek economy. That will hit tax receipts. If Greece has to resort to issuing TANs or other government scrip to pay workers and pensioners, that will likely further damage confidence. Thus Greece will remain in the Troika’s sweatbox.
Thus even with its intention of remaining in the Eurozone, Syriza may be forced to contemplated a Grexit as it struggles to finance its budget after its primary surplus has vanished. Of course, that assumes that the government remains popular after it imposes capital controls and starts issuing funny money. But if it does, a Grexit is not impossible, since the creditors’ continued unwillingness to fund a defiant Greece will make it harder and harder for the government to meet commitments that it has defined as red lines, such as paying pensions and spending on humanitarian relief.
Thus even if a Grexit is probably not an immediate result of a Greek default, that does not necessarily mean that Greece remains in the Eurozone. Even though the costs of an exit are extremely high, the costs of staying in are set to increase.
1 comments
Author