It can not get worse in Greece

Do not be too worried about the Greek economy if the country leaves the euro – it simply can not get much worse than it already is. The conclusion drawn by the analysts Oxford Economics.

While both the Greek central bank and the world’s market analyst tremble at the consequences of a Greek exit from the euro snatches the analysts Oxford Economics on the shoulders. It can not get worse in Greece than it already is.

Seen from a historical perspective, the Greek crisis is in fact already one of the worst banking crises the world has seen. Greece’s GDP has dropped 26 percent from the growth peak in 2007 to the current ground level.

When converted into dollars, then the loss even greater – 42 percent. If the US economy would to shrink as much, it would be equivalent to the total production in the states of California, New York and Florida.

“Exit or not, GDP could collapse just as much before people will find a way to produce something,” write the analysts in a market letter on Wednesday.

Looked in to 137 different banking crises

When the analysts studied 137 banking crises, they find only five where the impact on GDP is worse than the current situation in Greece. In three of the cases were due crises of the civil war and in one case on a commodity collapse. Argentina is the only country that managed to get to such a drop in production through pure banking crises in the 1980s and 1990s.

It does not mean that the consequences of a withdrawal can be severe in the short term. Following Greece-like crises in Argentina and Iceland, GDP could fall by 10 percent in the first period. But according to Oxford Economics recovery may be faster than the market expected.

“A reason to be optimistic about Greece is that so many of the bad things that could hit an economy already occurred, which means that it simply cannot get much worse, but it is historically,” write the analysts.

One example is the plummet. In terms of share of total GDP before the withdrawal was the Greek capital flight to be about six times as large as it was in Argentina during the crisis of 2001.

“The empty nesters capital would act as a shield against depreciation since the Greek assets would be very cheap at an exit,” write the analysts. There is another potential silver lining to the Greek cause for concern. Today deterred investors of the uncertain climate. But if the Greeks leave the euro zone at least one concern disappears in any case. The Greek assets will be both relatively inexpensive and provide much higher returns than other European counterparts. In addition, analysts believe that a withdrawal means that a substantial debt reduction becomes more likely.

Euro zone loosing on Greek exit

According to the analysts, it is really just the euro zone losing in a Greek exit. If those who believes the worse is right and the Greek economy continues to shrink to historically low levels, it could have a contagion effect in the European policy with increased populism and nationalism.

But if the Greeks succeeds they would instead get a period of continuous growth following the initial collapse, which may also create problems for the euro.

“It could serve as a blueprint for other economies in the euro zone, whose recovery is struggling to take hold,” writes Oxford Economics.


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