Euro plunges after reports Greece could leave currency

[Tarek Morgen]

Greece denies claims by Der Spiegel but markets react quickly after report of emergency meeting in Luxembourg


The euro has fallen sharply on the foreign exchange markets in late trading after reports Greece is preparing to leave the eurozone. Athens has denied the reports.

The Greek deputy finance minister, Filippos Sachinidis, told Reuters: "The report about Greece leaving the eurozone is untrue. Such reports undermine Greece and the euro and serve market speculation games."

full article here:

Euro plunges after reports Greece could leave currency | Business | guardian.co.uk

and here the English version of the article that started this:

Athens Mulls Plans for New Currency: Greece Considers Exit from Euro Zone - SPIEGEL ONLINE - News - International

My guess would be that it is rather some saber-rattling for the ongoing negotiations...and of course getting the Euro down from it latest high is something few in the Eurozone are worried about.

[gunnut]

What would happen if Greece actually leaves the Euro?

[Tarek Morgen]

The first problem, right now the only way to leave the € would be to leave the EU as a whole. Of course that can be changed, but leaving the EU would exclude Greece not just from the common currency, but also from the common market, the Schengen Treaty (very important considering that Tourism is one of the few things that actually produces income in Greece). The flow of goods and money would get much harder and slower, further hurting their economy.

The one good thing (from a Greece perspective) would be that they could then devalue their currency (or even default outright) and deal this way with their debt (which would mean loses in billions due the credits & loans paid to Greece for the rest of Europe). After this their credit rating would be even worse than now and their new currency would be so weak that anyone who still has capital would try to get it out of Greece..which would lead to Greece constructing barriers to prevent the flow out of billions. The list goes on, but I try to to summarize it:

For Europe, very costly in the short run due since it won't see the money again it paid to Greece...but neither would it have to pay further.

For Greece...it would be like trying to treat a bad gun shot wound to a leg by cutting of the leg while assuming that they simply grow a new one on their own.

[TTL]

Can't they leave eurozone without leaving EU? Many experts seem to believe their default is inevitable and they are just loosing time. They are pretty screwed both ways but without euro at least they can devaluate the new currency and start to rebuild the economy.

Secondly, would EU be willing to vacate at least some of the debt to keep Greece in eurozone?

[Tarek Morgen]

Right now, it is not possible to leave the eurozone without leaving the EU. The option to leave the EU itself is still rather new as well. Of course if really wanted, this can be changed.

Secondly, would EU be willing to vacate at least some of the debt to keep Greece in eurozone?

my guess would be that is what Greece is hoping for.

[tantalus]

My guess would be that it is rather some saber-rattling for the ongoing negotiations

probably, and it illustrates that they have more nerve than us irish

an article dating from November on the idea of breaking from the eurozone BBC News - Leaving the euro: how would it work?

Much has been written about the theoretical attractions for financially troubled countries in exiting the euro-zone.

But the question of how a country would go about it is less well explored.

And the more closely you examine the question of "how" - as opposed to "why" - a country might leave the euro, the clearer it becomes that the practical difficulties are huge.

[cyppok]

The one good thing (from a Greece perspective) would be that they could then devalue their currency (or even default outright) and deal this way with their debt (which would mean loses in billions due the credits & loans paid to Greece for the rest of Europe). After this their credit rating would be even worse than now and their new currency would be so weak that anyone who still has capital would try to get it out of Greece.

Why can't they default within the eurozone? simply stop the debt payments and that's it default accomplished?

I was thinking about it and my feeling on the capital flight issue is this. Those who could get out did, those who remain have contingency plans and will take "implied" losses if the event occurs.

If they default and devalue the risk adjusted returns would be very high post event and the prices would simply have to collapse since credit within the country would collapse. Assuming liquidation (which would be the proper way to go) you would be able to get something good (real estate, capital equipment) very cheaply.