The main question posed these days that is related to the situation in the EU is what the Grexit scenario would cause to the rest of the users of the euro. Grexit is a slang term introduced in February this year by the Citigroup’s analysts and refers to the scenario of Greece’s leaving the Eurozone and readopting drachma. The most essential issue related to this possible turn of events is how costly would it be not only for Greece, but for the whole EU. The situation showing that such decision would bring negative consequences could be seen through the fact that by leaving the euro that country would be open to the global economy during a recession’s devastating consequences.

grcki euroBy giving up the single currency Greece could be followed by the other economies of southern Europe. According to the current studies, that state of affairs will create a hole in global economic growth amounted to 17 trillion euro that would cause a wave of global recession, shifting the economic conditions even in the United States and China. Another question that requires a response at the moment is: what could happen if Greece would have bankrupt and creditor countries would discontinue giving support to other Eurozone members? In the worst case scenario, according to the latest study made by Prognos AG the European Central Bank would be a sort of insolvent, so that the output of the single currency of Greece, Portugal, Spain and Italy would cause downturn, generating a decline in gross domestic product of about 17.2 trillion euro in at least 42 developed countries in a rapid tour that will not be ended before 2020. According to the estimations presented by the CNBC, the turn down will be the greatest in France, even 2.9 trillion euro, then in the U.S. 2.8, in China 1.9 and Germany 1.7 trillion euro. They reveal that many analysts have speculated on when not if Greece would leave the single currency, but German Chancellor Angela Merkel, the president of the ECB Mario Draghi and the president of Eurogroup Jean-Claude Juncker have constantly pledged their hold up for the country over the recent months.

The Prognos’ study shows that France would be particularly hard hit by the Italian sovereign default and exit from the euro on account of the extensive loans that French banks have placed in Italy. According to the most recent study by the Prognos AG (PDF file available here) of the analysts, in addition to a range of issues and economic consequences, such as the recession, the downfall of the euro threatens also the political stability in Greece as well. Despite all of the data presented in studies, the damage that would cause Grexit still cannot be precisely predicted, since it is creating a spiral of problems for the rest of the world.

On the other hand, there should be considered the cuts that will be made that will have an impact on lowering of the gross domestic product, but in terms of fiscal measures that would open a decade of overstated restrictions. That shows why once a country takes the euro and, unlike the Denmark, uses it for a certain period of time it cannot go back.

The current data are showing that the global economy is going through a long period of restrictions and taxation so it represents a combination of monetary and fiscal policies, while EU may be supposed to be in a benefited position. However, the fact is that there are breakings inside the system that will make avoiding the risk even more difficult. According to the current data and projections, some of the largest and most advanced economies in the world, first of all the United States, top EU countries, United Kingdom and Japan still swing among the resolutions on fiscal policies that might have an impact on a decrease in GDP by approximately even more than one percentage point per year, and it is estimated that such trend could last between five and eight years, which prolongs the uncertainty and reduces the chance of recovery to come even for a decade.

It is important to highlight that the euro is the final step in the integration process, but the fact is that member countries are more striving into it than they are actually meeting the other criteria for synchronization with other members at other levels. In other words, the purpose of the EU was not to create only a space with a single currency, but the single market with harmonized regulations, where such a step is preceding. Unfortunately, this important step was omitted and it resulted with a desire of some countries, not only Greece, but also Spain and Portugal, to abandon the single currency.

If the analyses continue to show that there is lack of benefits of the output of Greece from the Eurozone in comparison with the number of side effects, it would be clear that Grexit should not be allowed. In that case the disintegration of the euro would mean the key source of political and monetary destabilization of the EU that would continue to spread globally. Unquestionably, this gives the good lesson to the other eight members that are not in the Eurozone should have to think twice before adopting the single currency.

There is no doubt that it is better not to go into the game with the euro before determining that the Maastricht criteria could be fulfilled in the long run, otherwise it will create an uncertain situation which any national economy would not be able to escape, which means that the return to monetary sovereignty will not be possible under any circumstances.

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