ATHENS: The Greece economy accounts for only two percent of the EU’s GDP, but any news on the country is causing a ripple effect in the business world. While most are knee-jerk reactions, the possible impact of paying a six billion Euro loan could potentially hurt more than it is anticipated.
With its debts too huge and unsustainable, Greece has two options: agree to the terms of and continue to be part of the EU, or go with the referendum and exit the Eurozone.
Frost & Sullivan Senior Consultant, Business & Financial Services, Vinod Cartic says: “A Euro exit could be costly and drastically reduce the value of Greece’s resident’s savings, putting further pressure on the earning class. Given that the debt will be in Euros, the Drachma will face significant depreciation tailwinds, potentially creating hyper-inflation leading to social chaos. However, after this painful transition, Greece might see marginal improvements in export and tourism due to a depreciated currency.”
Alternatively, and even though 60 percent of the Greeks voted for “no bailouts” in the referendum last Sunday, Greece might still want to remain in the Eurozone, but with a substantially lower debt burden, a position that is both economically judicious and protected by treaty. Relief and real reform packages to restore growth must therefore be balanced and benefit both debtor and creditor. Given the steep decline in GDP by 25 percent from 2010 and nearly 60 percent unemployment level, Greece might use its savings to pay pensioners, provide food relief, improve infrastructure, and pump in direct liquidity toward the banking system.
