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HSBC points out 13 consequences if Greece leaves the Euro

01 October 2011 / 17:10:17  GRReporter
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If Greece decides to leave the eurozone, which would also mean withdrawing from the European Union, HSBC Bank believes the consequences could be summarized as follows: 

1. The nominal value of assets and liabilities of the banking system will be restated in order to devalue the currency. 

2. There will be checks on capital, because of the immense current account deficits and in order to limit the daily cash withdrawal so as to avoid the collapse of the banking system, which no longer has access to the liquidity of the European Central Bank. 

3. Bankruptcy will not eliminate the need for fiscal adjustment, since the balance will still run a deficit, and will therefore need to have even greater savings than those provided for in the Troika's reserve plan. Given that this is politically unfeasible, the Bank will proceed with the monetization of debt, i.e., it will begin to print money. 

4. There will be an increased likelihood of bankruptcy of firms holding foreign currency debt, which will lead to numerous legal actions in the creditor countries. 

5. The wage spiral that is likely to occur (especially if the Central bank starts printing money) will quickly remove any competitive advantage unless the state proceeds to undertake the massive structural reforms. 

6. It will be very difficult for the country to restore its traditional currency. 

7. Technical issues will be huge: the legal and computational codes will have to be rewritten, ATMs will have to be reprogrammed, etc. 

8. The country will also have to leave the European Union and the member states will be able to impose trade taxes and duties on it. 

9. There will be a transfer of the crisis to other countries from the periphery, in cases where there is a precedent with a country which has left the eurozone, which will lead to an "explosion" in spreads and bonds as foreign investors will gradually leave, and there will be mass withdrawals from banks which will undergo a "credit event". 

10. The European Central Bank will have to deal with the problem and provide tremendous liquidity and buy government bonds as the European Financial Stability Fund (EFSF) will not issue bonds quickly enough to proceed with the necessary purchases. 

11. The European Central Bank, the entire private sector and creditor countries will have barred all claims for debt repayment from the country, which has left the eurozone, with the only possible exception being the International Monetary Fund. 

12. The ensuing credit crisis will make the crisis of 2008 seem insignificant, and the world economy will fall into a deep recession. 

13. Governments of member states will turn to British justice for loans given within the framework of the rescue package. 

If, on the other hand, Germany leaves the eurozone there will be a problem with political commitment, there will be a revaluation of foreign currency effects on exports, there will be an underestimation of the foreign assets of German households, companies and banks, banks will have to recapitalize, as their foreign assets in Euro will cost less, Germany will have to leave the European Union as well, and most probably the eurozone will not be able to withstand the withdrawal of the largest economy in Europe. 

Tags: HSBC Greece bankruptcy economy crisis banks EU
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