Greece is poised between remaining a member of the eurozone or leaving it. In fact, as WSJ’s Stephen Fidler explains, there are five possible future currency arrangements for Greece. Here they are…

 1. Greece stays in the eurozone: This is the option likely to cause the smallest short-term disruption to the Greek economy.  The Greek central bank would retain access to liquidity from the European Central Bank, and the Greek banks would stay on life support. This looks increasingly likely to be accompanied by some kind of further negotiated debt relief. To get it, Greece would almost certainly have to agree to more conditions of the sort successive Greek governments have found it hard to accept.

2. Greece keeps the euro, but sits outside the eurozone: Jacob Funk Kierkegaard of the Peterson Institute for International Economics in Washington calls this the “Montenegro option” and argues this is the most likely outcome should Greece exit the eurozone.  This would not be “a new drachma, but Montenegro—i.e. Greece becomes just another relatively poor unilaterally euroized non-EU Balkan economy,” he writes here. In some ways, this would be the worst of all worlds because Greece would lose access to the ECB. Countries using a foreign currency as legal tender have no access to a lender-of-last-resort, which means that every bank liquidity crisis becomes a solvency crisis. They therefore tend to have stunted domestic financial sectors — which almost every academic study shows is bad for growth — or have a banking system owned by foreigners, which exports the lender-of-last resort role to other countries’ central banks. (Mexico didn’t adopt the dollar after the 1994-95 financial crisis — but in order to avoid an undue shrinkage of its banking sector, it allowed most of its banks to be bought by foreigners.)

Submitted by Tyler Durden
Full report at Zero Hedge

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2 thoughts on “Greece: The Five Possible Paths Forward”
  1. Something last minute will be done, because if, Greece is not bailed out, the government, goes into receivership and assets of the Greek government liquidated. BRICS picks up Greece. Russia steps in to give a loan on the basis of Quid Pro Quo, and the Russian Federation establishes strategic military bases in Greece. It has been a strategic location since the beginning of recorded history. Greece falls, the Balkans fall. Russia steps in, again for military bases. Unless Obama gives Greece a US taxpayer loan to bail out the Greek government. If not, then the EU takes a financial hit, as does America, and the globe. It would set the stock market below 3000 points as a high mark.Greece will get bailed out last minute or once the financial market understands that if it goes past two weeks in default, everyone loses money, even the investing societies.

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