10 steps to drachmageddon

So it seems the ‘Grexit’ from the Euro has been delayed once again. But plenty have been asking what will happen should they leave the Eurozone.

The Sunday Times this week provided an excellent and quick ten step guide to such an occurrence. It was written by Kathryn Cooper:

  1. INTRODUCE DRACHMA – The Greek government would pass an emergency law saying a new drachma would be legal tender and re denominating all domestic wages, prices and contracts in it.
  2. RUN ON THE BANKS – Greek savers pulled about £28.5 billion our of their banks last year and this would accelrate. To avoid the run getting out of control, banks would be closed for several days during redenomination.
  3. CAPITAL CONTROLS – Just as when Argentina broke its peg to the dollar in 2002, Greece would be forced to impose capital controls to prevent a flight of capital. Withdrawals from cash dispensers could be restricted and border controls imposed.
  4. DRACHMA COLLAPSES – The new currency would slump in value against other currencies by a predicted 50-80% wiping out much of the value of Greek people’s savings.
  5. GOVERNMENT DEFAULTS – Prices for even the most basic goods would surge as the currency devalues, creating even more hardship for the struggling Greek population.
  6. INFLATION SOARS – Prices for even the most basic goods would surge as the currency devalues, creating even more hardship for the Greeks
  7. DEEP RECESSION IN EUROPE – The greek economy could shrink by 10% in one year alone while other European countries could suffer a fall in output of up to 5% according to the bank ING. House prices in Greece could slump by up to 35%.
  8. RIOTS OR CIVIL WAR – At best, the hardship would cause further violent protests. At worst, the country could end up in civil war, as the Greek minister of civilian protection has acknowledged. The unrest could pave the way for a military coup.
  9. CONTAGION – All eyes would turn to Spain – all the more so given the cool reception by the markets to last weekend’s£81.5 billion rescue to its banks. The European authorities would do all they could to keep Spain afloat, and it could muddle through. But if its economy deteriorated Spain could be next in line for a crash.
  10. EURO BREAK-UP? – With Spain on the brink, markets would target Italy, Portugal and Ireland leaving authorities powerless to stop a partial dissolution of the eurozone. In an armageddon scenario, the European economy, including that of Britain would shrink by 12% over 2 years, ushering in a second Great Depression.


One comment on “10 steps to drachmageddon

  1. James P
    June 19, 2012 at 12:08 pm #

    Surely that should be ‘when they leave the Eurozone’? It’s just a nettle that no-one wants to grasp.

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