‘Real hell’ predicted if Greece leaves euro

In Athens, the homeless are on the streets in growing numbers, soup kitchens feed twice as many people as a year ago, and the poor are rummaging in rubbish bins in search of scrap to sell.

Greece is close to breaking point, but this is just a foretaste of the nightmare of unrest, hunger and anarchy that may engulf the nation if it is forced out of the euro.

If the exact impact of such a move is hard to nail down — newly issued drachmas, devalued by up to 70%, runaway inflation, a banking meltdown, a collapse in trade — the implications for ordinary Greeks are even harder to predict.

Without international bailout cash, salaries and pensions would go unpaid and violence, political extremism and uncontrolled emigration would follow.

Greece imports 40% of the food it consumes, nearly all of its oil and natural gas, and much of its medicine. It has long been clear to some commentators that there could be trouble ahead.

Confronted with post-exit turmoil, foreign suppliers would simply put up the shutters until the situation becomes calmer, leading to acute shortages of basic commodities, which could fuel serious civil unrest, said Bank of Greece Governor George Provopoulos.

Provopoulos warned as long ago as December that a return to the drachma would be “real hell”, with Greeks forced to resort to barter during the transition between the two currencies, “trading a kilo of olive oil for three kilos of flour”.

“There will be shortages in basic staples,” said Provopoulos. “Without fuel, the army and the police would not be able to move their vehicles. After a long period, things will return to a better balance. But during the first transitional phase we would be experiencing a nightmare scenario.”

Most economists agree the austerity measures Greece is labouring under offer it little hope of recovery in the near term, and some argue that if it leaves the euro, it could export its way back to health on the back of a vastly devalued currency.

But, barring tourism, it does not have businesses or industries that could drive such a recovery.

Even if freed of its debt- cutting targets, the fact the country runs a primary deficit means it would have to continue austerity measures and, because it would be shut out of international markets, it would have no one to borrow from.

“Even if you strip interest payments, with a primary current account deficit at about €10bn, it would mean economic life would grind to a halt,” said Yannis Stournaras, head of Greek think tank IOBE.

“Greece would have a hard time to import oil, foods, medicines and other primary inputs. Imagine the navy, police, without fuel. Natural gas spigots would close. GDP would be hurt by a battered banking system. Public debt would increase.”

Leaders of major industrial economies meet this weekend to try to head off a full-blown crisis where fears are growing that Greece could leave the eurozone, threatening the future of the common currency.

No economic policy decisions are expected from the talks but officials said US president Barack Obama hopes to promote a discussion on a comprehensive approach to resolving the crisis.

The ordinary citizens of Greece can only wait and see what happens.

Merkel interjects

Germany’s chancellor apparently waded into Greece’s choppy political waters, with Athens saying Angela Merkel suggested it should hold a referendum on the euro with next month’s national elections.

Government spokesman Dimitris Tsiodras ruled out the idea, which he said Ms Merkel floated during a phone call with president Karolos Papoulias.

“[Merkel] also conveyed to the president thoughts on holding a referendum along with the elections, with the question of to what extent Greek citizens wish to remain in the eurozone,” Mr Tsiodras said.

“However, it is obvious that the issue lies outside the jurisdiction of the caretaker government.”

Greece holds elections on Jun 17 to end a stalemate after a May 6 vote.

The rise of parties opposed to Greece’s austerity commitments — made to secure vital rescue loans — has raised fears that if anti-bailout parties prevail, the country could be forced to leave the euro.