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Can Greece exit the eurozone without causing a catastrophic collapse?

Can Greece exit the eurozone without causing a catastrophic collapse?

We recently discussed the ongoing fiscal crisis in the eurozone. As events have dragged on, there has been an increasing amount of speculation regarding the prospect that Greece – the most troubled nation in the currency union – will abandon the euro.

At the recent annual meeting of the International Monetary Fund in Tokyo, Swedish finance minister Anders Borg said he believes it is “most probable” that Greece will leave the eurozone and observers shouldn’t rule out the idea that it will happen within the next six months.

However, few people have come forward with a practical plan for separating Greece, or any nation, from the eurozone. When negotiating the underlying treaties, the euro’s founders did not establish a process for countries to depart the currency union.

The Boston Globe recently looked at a hypothetical plan put forward by Roger Bootle, head of research firm Capital Economics. Bootle’s proposal has one goal – creating an independent Greek financial system without causing, or allowing, significant capital flight prior to the conversion.

Bootle concedes that his plan would be particularly painful for poorer Greeks, but he says he believes that not taking action would only prolong the period of difficulty and lead to greater hardship.

Barry Eichengreen, a Berkeley economist, told The Globe that he was highly skeptical a plan along the lines of Bootle’s would be effective in abating the current crisis. He concedes that the plan is “beautifully crafted,” but asserts that even careful craftsmanship doesn’t necessarily mean the plan is realistic.

However, Bootle points out that, just because his plan leaves a number of messy, unresolved questions, that doesn’t mean there are any alternatives that would offer a problem-free resolution.

Whatever action is undertaken by European governments, it is clear that companies with interests in the continent will have to keep a close eye on new developments and react accordingly. Financial project consulting services can provide a critical aid in this process.

ExecutionistCan Greece exit the eurozone without causing a catastrophic collapse?