Debate Club

The Costs of Greece Leaving the Euro Could Be Very High

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It is hard to imagine that the economic crisis in small country like Greece that is just over 2 percent of the Eurozone's gross domestic product is generating shock waves big enough to destabilize the region. Today, politicians, pundits and the public in Europe are talking about the possibility of Greece leaving the euro and returning to the drachma.

What seemed like an inconceivable idea just a few months ago, today seems almost inevitable, but the costs of Greece leaving the euro could be very high.

[See pictures of the EU in crisis.]

"The spillover effects, the chain of consequences that could result from that [Greek euro exit] are very difficult to assess," Christine Lagarde, Managing Director of the International Monetary Fund told the press. "We can certainly assume that it would be quite messy."

Continued economic and political turmoil in Greece is generating great market volatility, wreaking havoc in bond markets and continuing to weaken growth prospects in the region. Greece's exit from the Euro could exacerbate these trends increasing the potential need for further bailouts for Spain for example.

The prospect of Europe's deepening sovereign debt crisis spilling over to the United States through exchange rates, trade and financial channels is also threatening.

[See a collection of political cartoons on the European debt crisis.]

Greece's continued failure to implement the harsh austerity measures imposed upon it by its creditors is making it hard for the creditors to continue to provide support. But Greece's non-compliance with this austerity agenda should not come as a surprise—the agenda was never politically or socially viable in Greece in the first place.

But where to from here? Europe and the Greeks themselves have to decide whether the costs of the bailouts are a worthy trade-off against Greece's inevitably messy withdrawal from the Eurozone.

Sabina Dewan

About Sabina Dewan Director of Globalization and International Employment at the Center for American Progress

Tags
euro
European Union
Greece
global economy

Other Arguments

#1
32 Pts
A Return to the Drachma Would Be Difficult, Damaging, and Dangerous

No – A Return to the Drachma Would Be Difficult, Damaging, and Dangerous

Kent Hughes Director of the Program on America and the Global Economy at the Woodrow Wilson Center

#2
26 Pts
If Greece Stays in the Eurozone, It Has No Future

Yes – If Greece Stays in the Eurozone, It Has No Future

John Kallianiotis Professor at the University of Scranton and a Native of Greece

#3
22 Pts
Greece's Influence on the Eurozone Is Ludicrous

Yes – Greece's Influence on the Eurozone Is Ludicrous

Maurice McTigue Vice President of the Mercatus Center at George Mason University

#4
21 Pts
Greece Leaving the Eurozone Would Be a Disaster

No – Greece Leaving the Eurozone Would Be a Disaster

Scheherazade Rehman Professor at George Washington University

#5
13 Pts
Greece Should Never Have Been a Part of the Euro

Yes – Greece Should Never Have Been a Part of the Euro

Eric Langenbacher Visiting Assistant Professor at Georgetown University

#6
11 Pts
Goodbye Euro, Welcome Back Drachma

Yes – Goodbye Euro, Welcome Back Drachma

Edward Harrison Founder of CreditWritedowns.com

#7
3 Pts
Greece Must Reform Its Economy and Stay in the Eurozone

No – Greece Must Reform Its Economy and Stay in the Eurozone

Michael Arghyrou Senior Lecturer at Cardiff Business School

#8
-8 Pts
A Greek Exit From the Euro Would Lead to Chaos

No – A Greek Exit From the Euro Would Lead to Chaos

Alexei Monsarrat Director of the Atlantic Council Global Business & Economics Program

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