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Posted on: May 29th, 2012 by AlYunaniya Staff No Comments

Greece: 3 scenarios for the day after

day after

photo: EU

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According to skai.gr, in Brussels, there are three possible scenarios for the European path of Greece in the aftermath of the elections. First, on June 18, a government willing to implement the agreed programme of economic adjustment is formed. Then, as soon as Greece reaches a primary surplus, the possibility of a 1-year extension of the agreement will be discussed, in order to reduce the overall deficit, and achieve the channeling of growth funds, in addition to those under the current programming period (NSRF). This “gift” will be an important move, since any major update requires approval of the Memorandum of 16 national parliaments. However, such a “reward” is already being prepared for Ireland, according to senior officials in the European Commission.

The second scenario is a “friendly” divorce with the Eurozone. According to this, the Greek government says it does not intend or it cannot implement the Memorandum, or Greece does not “pass” the next troika assessment. Then, the installments of the funding programme will simply stop and Greece will have to meet its funding needs from within. Then, austerity is intensifying, since Greece will remain with a primary deficit that it cannot serve through lending. However, the ECB continues to support the Greek banks and Greece remains in the eurosystem. Due to the lack of liquidity, a parallel bill will start circulating against “debt” in Euro (IOU – from the English phrase “I owe you”). The deposits are in euros, thanks to the support of the ECB, but progressively, new money replaced the old. In this scenario, the gradual disengagement of the euro could last for years, the rest of the Eurozone takes urgent steps towards further political and economic integration, while avoiding the “raid” in Spanish and Portuguese banks, since people see that even in the extreme Greek case, deposits do not change currency. Moreover, the eurozone as a whole continues to guarantee the stability of the banking system.

The worst scenario includes the new Greek government not only terminating the loan agreement and reversing the steps already taken, but appearing in full confrontation with the Europeans. Then the “hard” line will prevail in Brussels, which opposes any further support. In this case, instead of a hard landing to the new reality, according to the second scenario, Greece will face destruction. ECB will “pull the plug” from the Greek banks and the transition to a new currency will take place in disorder and panic. The process of issuing new currency will take months, during which there will be a real crunch in the economy. Invasions will take place in banks, while the new currency will have no exchange value and prestige abroad.

Withdrawal from the EU would be just one of the calamities that await the country, in this case. Also, even if Greece stopped repaying loans, the claims towards the country would remain, putting Greek assets abroad in jeopardy, and the country in an impossible legal and diplomatic position.

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