The recent developments in Europe regarding the future of the Eurozone are not reassuring. Both the turbulence in the Franco-German axis and the open conflict between Great Britain and Germany, have a negative effect at the cohesion of the European Union. At the same time, Member States, such as Hungary, are openly expressing their opposition to the prospect of entering the Eurozone.

In Greece there are voices arguing in favor of leaving the Eurozone. Consequently, a simple question rises. Is it reasonable for Greece to keep the Euro as its currency? In fact, the consequences for Greece leaving the Eurozone would be extremely severe, both for the country and for the entire European Union. In the following article, I will attempt to capture the most important of them.

The consequences for the European Union

The European Union will suffer from the deconstruction of the Eurozone, because:

a) An exit (also called Grexit in our case) from the Euro is not foreseen in the EU Treaties. In contrast, the Lisbon Treaty contains a voluntary withdrawal clause (Article 50), explicitly recognizing the possibility for a Member State to choose whether to remain in the EU or not. From the above, it can be deducted that an exit from the Eurozone is indirectly connected to an exit from the European Union, which would probably mean the beginning of the Unions’ end.

b) Europe without one of its strongest symbols, the Euro, will significantly lose its influence in global politics. The same, however, is also true for the largest countries in the EU (e.g. France and Germany).

The consequences for a strong European economy

Strong economies will pay a high price if the Eurozone collapses. Let’s look at the consequences in a sample case, e.g. of Germany.

a) 40% of Germany’s exports are directed to Eurozone countries. The main reasons are the lack of quotas, the elimination of the exchange rates and monetary stability offered by the common currency. The reintroduction of the “Deutsch Mark” would probably be followed by its rapid appreciation against the Euro. German products will be sold up to 40% more expensive (calculation of UBS), resulting into a shrinking of the German export industry.

b) The collapse of the Eurozone would put an immense burden in the German economy. Calculations vary between 14% and 25% of the German GDP only within the first year. Comparatively, the rescue of the troubled economies in southern Europe would cost just a small fraction of these nightmarish figures.

c) The decline of shares in the stock exchange is expected to put most Banks in trouble, only to be bailed out with new billions from the German tax payers.

d) The creation of national currencies will automatically trigger a transferring of funds towards the strong countries’ monetary unit, particularly towards the Deutschmark, as the European citizens would want to exchange their national currencies against a stronger and more reliable currency. This will lead to strong inflationary pressures, which the Germans despise, as it evokes to them the dramatic period of the Weimar Republic (1919-1933), short time before the rise of Nazism in Germany.

The consequences for a weak European economy

Proportionally, the greatest impact from a collapse of the Eurozone will be recorded in the economically weaker southern European countries like Greece, Portugal and Spain.

a) As seen above, an exit from the Euro is not foreseen in the treaties. Instead, an exit from the EU is possible, a process which, however, requires considerable amount of time (up to two years), in which investors will have all comfort to withdraw their funds and their investments from the respective country (disinvestment).

b) During the establishment of the Euro the national debts of all countries in the Eurozone were automatically converted into Euros. In most contracts, an inversion of this procedure is not foreseen, while particular attention is to be paid to the legislation that regulates national debts. Lengthy legal battles are possible to arise between countries and their lenders, a perspective that will further tarnish their image. Like many sovereign countries, Greece was retaining its national debt under national law. This was changed in 2010, following the loan agreements for 110 billion Euros according to the first Memorandum between Greece and the Troika.

c) Weak countries will have to pay off their debts having a new devalued currency, which obviously makes payments impossible.

d) When a country changes its currency there are always winners and losers. To the latter we count the savings of the middle-class people, whose deposits will automatically lose value due to the devaluation of the currency. This may lead to severe social unrest.

e) The most common phenomenon observed in a state of bankruptcy is a massive demand of cash from the banks, the so-called “bank run”, and the attempt to move capital abroad. This massive capital outflow will possibly give the final blow to the banking industry.

The European course

The crisis in the Eurozone has plunged the European Union into the most difficult phase of its history. The number and magnitude of the consequences that would follow the dismantling of the Eurozone would be devastating for every European economy. This is why immediate measures need to be taken, in order to restructure the national economies of the troubled EU member states.

The Greek society is undergoing this painful transformation having already felt the effects of the global economic crisis. Its cohesion will be once again put into the test. As time passes nothing will remain unchallenged. Not even the founding Treaties of the European Union.


This is the English version of an article that was posted on 11 December 2012 in the “Neos Agon” newspaper of Karditsa, Greece.

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