Exiting the Eurozone: The implications of a ‘Grexit’



What’s a “Grexit?”

“Grexit” is a term coined by Citigroup economists Willem Buiter and Ebrahim Rahbari. Gre(ece + e)xit, or Grexit, refers to the possibility that Greece could exit the Eurozone and give up the euro as its currency.

As long as Greece is part of the Eurozone, Greece (GREK) is bound to obey the rules and abide by any guidlines established by the European Central Bank, or ECB. Greece must adhere to the austerity program imposed upon it by the ECB, the International Monetary Fund, and other creditors in the aftermath of the Greek debt crisis of 2010.

Article continues below advertisement

Implications of Greece exiting the Eurozone

Greece’s exit from the Eurozone (VGK) would mean it would no longer be bound by the austerity measures that have resulted in massive cuts to public spending. It would also mean that the country would go back to using the Greek drachma, its own independent currency. But how then, would Greece manage to fund its public spending?

The Greek drachma, once revived, is likely to see depreciation in value, at least initially. This stands to reason given Greece’s current economic and political situation.

A weak Greek drachma could help boost exports, as they would become cheaper in international markets. A boost in exports would spell good news for Greek olive oil exporters such as El Renieris & Co and Greekpol. Greece happens to be the world’s largest exporter of extra virgin olive oil.

Meanwhile, a Grexit could have more serious and much larger consequences for Spain (EWP), Italy (EWI), and the global (ACWI) economy, as you’ll discover, next.


More From Market Realist