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A Greek exit from the euro zone would be worse than catastrophic and could provoke greater social unrest, Zimbabwe-style inflation and a military coup, said London-based hedge fund firm Toscafund.
In a stark note to clients, chief economist Savvas Savouri said introducing a new currency instantaneously in the wake of a euro exit would be impossible and the delay would lead to "a run on banks and evacuation of capital that would make what has already been seen as nothing by comparison".
"The word catastrophic would not do it justice enough," said Savouri, who comes from a Greek Cypriot background.
"Those who imagine some post-euro-exit stability would be restored ... quite simply fail to understand the magnitude -- social, economic and political -- of such an eventuality."
Savouri said he would expect the euro to remain the currency of choice in Greece even if it left the euro and for the official exchange rate with the euro to be quickly undercut on the black market.
He predicted a range of problems for the country, from hyperinflation, extreme difficulty for the government in raising money on bond markets and an evacuation of people able to leave the country, taking as much wealth as they can with them.
"Inflation in Greece would quite frankly spiral in a way resembling Zimbabwe's experience,"said Savouri, who also predicted severe poverty amongst the elderly.
"The social unrest seen up until now in Greece would be nothing compared with what would be seen in the dawn of a new drachma."
"It would not be hyperbole to argue that the denouement of a Greek exit from the euro would be at worst the rise of poisonous political extremists and at best a military coup."
Talks between Greece and its creditor banks to slash the country's towering debt pile broke down on Friday, with the Greeks warning of "catastrophic" results if a deal to swap bonds is not reached soon.
The two sides are divided over the interest rate Greece will end up paying, which determines how much of a hit banks take.
Athens needs an agreement, seeing creditors voluntarily giving up a lot of their promised returns, to reduce its debt to more sustainable levels and convince the European Union and International Monetary Fund to keep lending it cash.
Both sides appeared to be digging in their heels in what analysts said looked like a high stakes poker game in a final attempt to convince private bond holders to take some losses to avoid a disorderly default that could threaten the entire euro zone.
It would come via a swap between old bonds teetering on the brink of default and new ones for which banks would take a big write-down. Without a deal, banks could lose even more and Greece would be threatened with default and possibly euro zone ejection.
Originally posted by AnIntellectualRedneck
Lots of hogwash designed to scare people into submission. That's all I see. You'll notice that this commentary is coming out of London, one of the financial centers of the world. They just don't want to lose their britches in those bad back door deals they've made.
Originally posted by Dbriefed
Didn't we hear the 'Tanks in the streets' speech before? If congress didn't act in 24hrs (then the WhiteHouse sat on TARP for weeks), then the money was not tracked and went elsewhere, if we didn't bail out xyz bank the world would end, etc., etc..
Iceland experienced one of the most severe recessions in the world when the markets crashed in 2008. Economic output fell by about 12 per cent over two years. But the latest report on Iceland by the International Monetary Fund shows that growth is resuming. GDP is expected to increase by a relatively healthy 2.5 per cent in 2011. The Icelandic public finances are on a sustainable path too with government debt projected to fall to 80 per cent of GDP in 2016.
The turnaround should not be exaggerated. Iceland is still more than 10 per cent below pre-crisis output levels. Unemployment remains at about 6.7 per cent, considerably higher than before 2007. The standard of living of most Icelanders is well down. Access to foreign currency is tightly controlled. And risks to recovery remain. Central bank interest rates are going up in order to curb inflation. This could stifle growth. Yet the fact remains that the outlook for the Icelandic economy is looking rather healthier than other distressed economies in Europe such as Greece, Portugal and Ireland.
So how did Iceland manage it? There were four pillars to Icelandic policy in the aftermath of the bust: external assistance, debt repudiation, currency depreciation and capital controls.Iceland: The broken economy that got out of jail
Ratings agency Moody's said on Monday that France's debt metrics and potential contingent liabilities were putting pressure on the stable outlook for the country's Aaa credit rating and said it would update its position on France later this quarter.
"The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the French government's Aaa debt rating," Moody's said in a credit opinion on France.
France's Aaa rating might come under pressure if the public debt [cnbc explains] keeps rising or if Europe's debt crisis worsens, Moody's also said, three days after rival rating agency Standard & Poor's cut its AAA rating on France by one notch to AA+.
Originally posted by Mimir
reply to post by surrealist
Greece, Italy and the other failing economies should take a look at Island who crashed in the 2008 "crisis" and stop listening to the fearmongering from Eurozone poleticians and their associates.