Greece Teeters: Will Brexit Lead to Grexit?

Following in Britain’s Footsteps Could Ruin Greece

As Greece’s economy continues to stagnate, could a Grexit be on the horizon?

As reported by BBC, “[the] bailout conditions [set by the IMF and E.U.] have brought years of deep recession and high unemployment, but have done little to reduce Greece’s huge debt burden.” In light of the Brexit, many Greeks are excited about the possibility that they could be next to escape the iron-grip of the E.U.

This talk comes amidst strong remarks by German Chancellor Angela Merkel that she would use “all her strength” to keep the E.U. in tact. Certainly, the poster child for austerity measures in Greece is unlikely to sway the Greeks one way or another.

What the Greeks should be concerned with, however, is how much damage a Grexit could do to their own economy. While there is a case to be made that Britain can and will survive the Brexit, the evidence is not quite on the side of Greece.

It must be understood the Greece faces problems and conditions fundamentally different from those any Brit could conceive of at the moment. Britain has the stability to maintain an economy independent from the E.U. Greece cannot say the same.

What’s important to note is that Greece already has an issue in its banking sector. While the banks continue having problems securing investment, average Greeks continue having problems withdrawing money from their own accounts. In short, the banks don’t have funds on hand and continue to face prohibitively high interest rates trying to obtain them. This would be exacerbated by a Grexit.

When Britain left the E.U., they already had their own pound to fall back on. While the currency took a hit, it is still widely accepted as a viable medium of exchange around the world.

Greece, on the other hand, still uses the Euro. While many clamor to return to their currency of old, the drachma, the results would be catastrophic. People trust the Euro, at least for now. People trust the pound, even as it falls. People would not trust the drachma.

The main purpose for switching to the drachma would be so Greece could attempt to inflate their problems away, a power currently denied to them by the E.U. It’s hard to imagine that very many people would be compelled to hold an inflated currency issued by a government that refuses to fiscally discipline itself.

If Greece thinks it is having trouble attracting investment now, it should wait to see what happens when the drachma plummets into the Aegean Sea. Also unlike Britain, who can take advantage of their fallen currency, Greece lacks the exporting base to do the same.

With much of their economy based on tourism, Greece would be hard pressed to get people to take advantage of their plummeting prices with the instability that would likely follow. More banks would close and more people would find themselves unemployed.

The problem ultimately stems from Greece’s inability to apply economic discipline. They rejected the E.U.’s offer of funds for austerity in 2015, and continued to prove to Europe that they don’t have the will to fix the debt-fueled problems that put them in their current predicament.

While Britain rejected the E.U. in the name of fiscal sanity, Greece would be rejecting the E.U. in the name of fiscal suicide. Greece has to be willing to take their medicine and hold themselves accountable for all of the mistakes they’ve made in the past.

Despite their Chancellor’s call for European unity, many Germans would likely rejoice at the prospect of unceremoniously booting Greece from the E.U. With Greece acting the part of the unemployed freeloader, its minimal economic contributions would hardly be missed.

With these circumstances in mind, Greece should do everything it can to clean up its act and stay in the E.U. Even if they’re aboard a sinking ship, a Grexit would be the equivalent of jumping into the freezing water below sans a life preserver.

Britain has the institutions in place to support their Brexit. If Greece tries to pull the same stunt without the fundamental supports, it will be at their own peril.