Worst-Case Scenarios: Berlin Prepares for Possible Greek Exit from Euro Zone
The German government has been simulating a range of scenarios to prepare for a possible exit of Greece from the euro zone. Under a worst-worst-case scenario, the country could descend into a vicious circle of misery that could last decades.
The Tomb of the Unknown Soldier in Athens: The German government has been running simulations to prepare for a possible Greek exit from the euro zone.
The German government is preparing for Greece's possible exit from the euro zone in the event that the country's new government decides not to continue with the previously agreed austerity programs. Experts at the German Finance Ministry have been simulating a variety of scenarios based on different assumptions, SPIEGEL has learned.
Admittedly, peripheral euro-zone members like Spain and Italy would still face challenges, but the assumption is that they would be better able to tackle their problems without the additional burden of the Greek crisis. According to the assessment of German government experts, these countries may currently be struggling to get access to money, but unlike Greece they are not close to insolvency.
In addition, the government experts also looked at a so-called worst-worst-case scenario. In this model, Greece's new currency would dramatically devalue against the euro. That would have the positive effect of making the country's exports cheaper, but the negative effects would outweigh the benefits. The country's national debt would rise despite a haircut, because Greece's debts would still be denominated in euros. The country's credit rating would be immediately downgraded again, and Greek companies would struggle to get access to money because the country's banks would also be cut off from international capital markets.
Many firms would go bankrupt because their debts would also be denominated in euros, with the result that many more workers would lose their jobs. Domestic consumption would collapse, aggravating the downturn. The country could take decades to free itself from this vicious circle, and other nations might also be drawn into the vortex. The German government experts do not, however, consider this scenario to be the most likely one.
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