(29 June 2015) – Return to the drachma would have devasting consequences for Greece, according to a financial analyst, Dimitrios Giokas, in an article published by The Huffington Post today.
Although the majority of the Greeks remain consistently positive about the European orientation of the country and would like to have the euro as currency, the percentage of people stating to be indifferent to a possible transition to the drachma and believing that it will not change their standard of living, has increased.
However, by analysing all the financial data of such a development, the effects would be very hard and painful. Namely, the consequences of return to the drachma would be:
- 1. Rapid devaluation of the drachma against other currencies (the rate might surpass 1,000 ΔΡΧ/1€).
- 2. The devaluation will lead to skyrocketing inflation at levels equal and greater than 40 percent.
- 3. Capital flight and a sharp increase in non-performing loans will be the coup de grace for the weak country’s financial system, which would collapse, “drying” the real economy.
- 4. In such an eventuality the wage and pension freeze payment will be inevitable for a while until the partial restoration of liquidity. The consequences from social unrest that will likely follow are unpredictable.
- 5. Gross domestic product will likely shrink to about 2/3 of the current level.
- 6. The public debt of Greece, totalling 322 billion euros, will increase automatically depending on the amount of the depreciation of the drachma.
- 7. Even if, after bankruptcy, a partial debt restructuring follows, it will not be painless. It will be accompanied by a new rescue package (only from the IMF now) and very burdensome fiscal adjustment measures.
- 8. There will be an equal increase of private debt through the skyrocketing of lending and depositing rates in an effort to control inflation. Higher interest rates will also make it difficult for businesses to raise capital.
- 9. Suffocation of import business due to a weakened market, the devaluation of the drachma and the obvious lack of credit.
- 10. Failure of imports will bring shortage of essential items on the market.
- 11. Invasion of predatory foreign investors, who will acquire companies, property, and public property at derisory prices.
- 12. Diplomatic and economic isolation of Greece, who, being in a very difficult situation, will not be able to follow geopolitical developments in the region, as well as any challenges by its neighbours.